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.

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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;14 – 00;00;17;26

Hello everybody. Welcome back to another Get Tuesday. I’m your host, Cody Koster, with me from Chicagoland. Mr. John Spain, our John, how are you on this beautiful Tuesday?

00;00;17;27 – 00;00;20;15

Doing great Cody and excited to be here.

00;00;20;18 – 00;00;38;20

Oh, we’re excited to have you here. Do a little synopsis on the global dairy trade this morning, up 2.3% as a whole. That is going to be the second auction in a row that we have been higher now. So lower on October 15th past two auctions higher. And this one, like I said, 2.3% higher. We were talking beforehand.

00;00;38;20 – 00;00;44;10

There were some, I guess highs and lows that you want to kind of dive into on what we would call the class war side.

00;00;44;10 – 00;01;06;13

Yeah, there sure are. There are some highlights in here. Let’s start out in the butter side here. Butter will say was up 0.3%. That comes in at roughly about 318 a pound on an 82% comparison. Again, we trade 80% here in the US. But we’ll say right around 318 the amount side of things got a little bit of a bump, 2.8%.

00;01;06;13 – 00;01;30;20

And so I guess I look at both of those and say that was kind of a nothing of an auction, right up 0.3% and up 0.8. I think when we look at those, however, in comparison, it really highlights some regional differences. We would say that Europe right now is still up in that 360 arena or area. And then here in the US our butter side is at two 5825.

00;01;30;20 – 00;01;59;27

So almost a dollar difference between the US and Europe. And New Zealand falls right there in the middle around that 318 area. I guess when I look at this and just say, did this live up to expectations? I think people are looking for a little bit more out of the New Zealand butter fat price in terms of that is probably one regional area that can compete with Europe more readily than the US, simply due to the types of butter fat that they make and some of the regions that they go into.

00;01;59;27 – 00;02;20;23

So probably expected to see a little bit more movement on the fat market today, specifically as we compare it to those European markets. When we get over to the powder side of things, this is where there’s a little bit more interesting. Let’s start with the one that probably lived up to expectations. Whole milk powder up 3%. Just another good auction for whole milk powder.

00;02;20;23 – 00;02;43;07

And just looking at it here, this is our second higher auction in a row. And probably out of the last six auctions, we’ve been up five of those auctions. So whole milk powder really having mounted a pretty big comeback here since earlier this summer when we were down in the doldrums at $3,100 a ton. Now we’re up at $3,800 a ton, again, up 3%.

00;02;43;07 – 00;03;05;16

When we compare that to the GDC pulse, I would say this came in right about where we thought it was going to or where the pulse was trading. And then when we look over at the whole milk powder futures, we’re trading around 3900 to 3915. So to see whole milk powder coming at 3826, maybe a little bit of a letdown compared to the futures, but hard to shake a stick at that one.

00;03;05;16 – 00;03;26;08

Skim milk powder, on the other hand, is the one that really kind of stands out to me. We settled at 1.1% higher at 131, the GDC pulse, I think it was expecting a little bit more juice on the pulse. We saw things trading at up 3%, up to about 132 ish or 130 two half. We didn’t quite get there.

00;03;26;08 – 00;03;45;05

So a little bit of a letdown there where I think it was mostly a letdown, though, was to the skim milk powder futures. I think they were kind of looking for about a 7% increase here. So we got a 1%. I’m forced to look at that and say, someone’s going to be let down by that, just simply because there was so much built into that.

00;03;45;05 – 00;04;06;21

However, it’s always hard to turn your nose up at skim milk powder when whole milk powder has had such a strong auction. Whole milk powder being the big dog of the auction. And as it drags higher right now, that just creates a bid in the skim milk powder. And then finally, let’s wrap it up here with the cheese side cheddar down 2.8% at 219.

00;04;06;21 – 00;04;27;10

Comparing that to Europe, that’s right around the same price that Europe is up us right now though, down in the low one 70s. And then mozzarella here at $1.96 that was down 6.3%. And both the cheddar and mozzarella we do not have a futures nor do we have a pulse. So it’s a little hard to know what those expectations are.

00;04;27;10 – 00;04;46;24

But I would say the European cheese prices kind of coincide pretty well with these prices. Maybe a little bit higher. The US price, on the other hand, trading the lowest in the world. So we are the lowest in the world here in the US on the cheese side of things. And we are the lowest in the world on the butter side of things by far, by a wide margin.

00;04;46;24 – 00;05;05;05

It’s skim milk powder. We are at $1.40. We would say New Zealand is at $1.31 after this auction. And finally we would say that the EU market is around $1.25 on the skim milk powder side. So again, lowest in the world on butter, lowest in the world on cheese, highest in the world on skim milk.

00;05;05;05 – 00;05;28;01

Our awesome. Well, John, if we can kind of shift gears here to the regions, buying on this global dairy trade you had mentioned before, we jumped on China back in the buying seat. They’re up 13% from the previous event and 39% higher year over year for the buying for this auction. So I guess we’re talking about a little bit of a bright spots that might be The Shining star of the event.

00;05;28;04 – 00;05;45;05

Why? I tell you what, it’s really becoming a point of contention with people out there in the market. When you look at this GDP auction, as you mentioned there, Cody, once again, China was active. We compare it over the last auction, up 13% comparing it to last year. We’re up 39 at least looking at it at face value.

00;05;45;05 – 00;06;07;23

That is saying that, hey look, China’s been busy and continues to be busy. When we talk to people that work in the export world that might go into China, they would say, I’m really not seeing it. And then when we see the actual data that comes in, it doesn’t really support the idea that China’s buying more. Now we have to be very careful with that because some of that data is delayed and we’re looking at imports.

00;06;07;23 – 00;06;25;13

And not only is the data delayed, but it could be backed up from the standpoint that at the time that those imports were ordered. Right. It would be a long time ago, and we just still haven’t seen the activity on the GDP hit the trade balance sheet yet. I have to say again, at face value, China’s been very active here.

00;06;25;13 – 00;06;47;09

When we dig into the details, it still seems like they’re a little off. But then let’s go to the other regions. I would say that here in the last few months, the Middle East and Southeast Asia have been pretty busy, right? So not only has China been busy, but these other regions have been busy as well. On this auction, the Middle East down 29% event over event and down 46% year over year.

00;06;47;10 – 00;07;12;22

They really backed off. And then probably, you know, our second biggest buyer on here would be Southeast Asia oh 2% event over event and down 6% year over year. So you know that ancillary player that comes in and probably sometimes plays a supporting role. The prices they were here, but they weren’t over the top like they have been in the past and looks like whole milk powder, which is very China centric though, started to take off right.

00;07;12;22 – 00;07;30;04

Products that other regions might buy, some of the fat products, some of the cheese products and the skim milk powder didn’t quite have the response that whole milk powder had. So again, very interesting to see them. I should say. Just trying to weed through. What effect is this actually having on international trade?

00;07;30;06 – 00;07;43;19

I guess to answer that question, we’re probably gonna have to wait another two weeks until our next get. But until then, John, was there anything else on this little dairy trade that you want to kind of hit on, or is that pretty much the nuts in the bolts of the trade this morning?

00;07;43;20 – 00;08;02;13

Boy, I’ll tell you what, this is one of those deals. When you look at these regional values and you try to bring in relative value to things, you start to scratch your head again. U.S. cheese down in the low one 70s while you’re up in New Zealand or up in the two 20s somewhere in there that is going to trigger some exports if it has not already.

00;08;02;13 – 00;08;20;08

On the butter side, it is hard to imagine that we’re going to skate by and not see some export traffic just due to these regional prices. So I expect to see cheese and butter find at least some support, right? I don’t know that it’s going to drive us higher, especially in the US cheese market where we’re seeing a lot of capacity come online.

00;08;20;08 – 00;08;38;00

But it should very much be supportive. The one that does stick out is skim milk powder. Again, we’re at $1.40. The rest of the world, $1.31 or lower. And I don’t mean to harp on this, but a it’s very rare that we maintain that spread. But where it really stands out to me is, yes, I recognize that we have bird flu in California.

00;08;38;00 – 00;09;00;28

It is having a very negative effect on milk production, and that is having a negative effect on nonfat production. I recognize that, however, something that does scare me is as we look into some of the trade data, you know, for nonfat, it shows that our domestic nonfat usage has been consistently down about 42% this year. On a year over year basis.

00;09;00;28 – 00;09;21;09

We have just seen our domestic nonfat consumption get really decimated here. And there may be a lot of different reasons for that, but what it does to me is it highlights the importance of the international market. So right now with bird flu in the mix does feel like, yeah, there’s less nonfat being produced, there’s been less nonfat being produced all year.

00;09;21;09 – 00;09;39;16

And that has really allowed for this premium to take place. But when and if we see milk production come back in California and we see that nonfat production start to ramp up again, it feels like if our domestic demand stays the same, we’re going to have to go to that export market bid and that right now maybe as low as $1.30.

00;09;39;16 – 00;09;48;04

So just want to keep that in mind. Not saying that’s going to happen overnight, but it sure is interesting when we look in and see those domestic demand numbers as low as they are.

00;09;48;06 – 00;10;11;07

And hit that a little bit more, we’re actually going to get our milk production report for the month of October on Wednesday the 20th. So we’ll have a little bit more insight on that side also John, appreciate you. Again. Tune in. And you know, going through the GDC with everyone, giving your insight and really hitting the numbers hard, we are going to be back together in two weeks, the beginning of this or the next global dairy trade together.

00;10;11;07 – 00;10;22;13

But until then, we appreciate everyone tuning in. We hope you get a lot of information out of this. If you have any questions for us, please hit above. We’d love to try to go through and answer it, but until then, everyone have a great week. Even better weekends. We’ll see you next time.

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