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;17 – 00;00;15;24

Hello everybody. Welcome back to another GDC Tuesday. I’m your host, Cody Koster, with me from Chicago, Mr. John Spade Howard. John, how are you today?

00;00;15;24 – 00;00;19;22

Doing all right, Cody, happy to be here on this fine Tuesday afternoon.

00;00;19;22 – 00;00;41;03

We are happy to have you here. We had a little two week lag in the GDC. This was one of those weird ones where instead of every other week, it was the third week. But nonetheless, we are back on the 5th of November to talk a little global dairy trade. So if I’m not mistaken, we were actually unchanged on the wax auction and a 3.8% on today’s transactions.

00;00;41;06 – 00;00;59;22

Yeah, Cody, today was a big auction up rather significantly, as you mentioned there. There were some big winners out here today. First of all, let’s start with homo powder. A kind of the big dog of the whole auction was up for point 5%. And that was a pretty big move for homo powder. And we don’t normally see it move that much or that aggressively.

00;00;59;22 – 00;01;23;07

That number was up. When we look at it in terms of expectations based on where futures were trading, we would say that it came in slightly over where the futures were trading and slightly over where the GTI pole trading, and then when we stick with the powder side here and go to skim milk powder, skim milk was up 3.8%, came in roughly at about a buck 29 on a U.S. dollars per pound basis.

00;01;23;07 – 00;01;42;17

I would point out that that number came in a little bit under futures expectations. So I think it came right in along where the GTI also expectations were. But when it comes to the futures futures, we’re looking for about another $100 a ton more out of that. So don’t want to take away from the fact that we were up 3.8%.

00;01;42;17 – 00;02;11;20

But I do want to mention that, skim milk powder that comes in a little bit below expectations when it comes to the fat side of things. AMF up 4.6%, water up 7.6%. Let’s use butter as the barometer here. And we’ll say on a US dollars per pound basis came in about $3.17 a pound. So when we think about that in terms of the rest of the world here, for sure we can say the US butter market now is significantly below the rest of the world.

00;02;11;21 – 00;02;38;10

We’re at 200 67.5. We just pointed out that the GDP is at 317. And we would say that Europe is still up in that 385 and 390 area on butter. So this auction was big and it shows that there might be some butter that is getting exported out of New Zealand, possibly at the expense of Europe. So I wouldn’t be surprised to see European prices ease as these butter prices came up on the GDP.

00;02;38;12 – 00;03;01;13

But we’ll probably need to wait to see that happen. From a seasonal perspective, when we look at cheese cheddar up, 5.8% came in at $2.26 a pound. Mozzarella was up 1.1%, up to $2.09. Both of those are quite a bit higher than the US price. And just to give a frame of reference in here, we would say that the European prices are higher than that.

00;03;01;13 – 00;03;25;21

We would say that mozzarella trading in that 225 area and their futures a little bit below that. So we’d say that European and New Zealand prices are kind of right in parity with each other, whereas the US price right now, when we look at it after today, we went down $1.79 and blocks on a $1.83 in barrel. So if we frame all this up, we would say the US is the cheapest cheese price in the world.

00;03;25;21 – 00;03;48;29

Now the euro, the cheapest butter price in the world. When it comes to nonfat, we’d say nonfat price. After today’s auction, we went to a $1. 39 five here in the US, or a dollar 39.5 New Zealand price is $1.29 ish. And then below that, we would say the European price is somewhere around 122 to 125. So the US is by far the highest nonfat skim price in the.

00;03;48;29 – 00;04;10;22

World, quite a bit higher to lower there. It’s interesting how we can be such a discrepancy in the cheese price, but when you switch to the glass for the nonfat side at such a higher price than what they have overseas right now, it’s just very interesting to look at it kind of apples to apples. But I know you’ve said that’s not quite the case on especially the cheese front, because there are a little different inner workings of that.

00;04;10;24 – 00;04;27;28

You bet. And on the cheese front, they are different somewhere in there, that differential in the price, even though the products are different, that will catch if the European and the New Zealand price stay high or continue to move higher, that will make a difference here in the US. But I think here in the US right now, we’ve maybe missed that export window.

00;04;27;28 – 00;04;54;04

Feels like maybe going into the end of the fourth quarter here. And at the same point in time, we have more finished goods of cheese product coming on. So I think we might see a discrepancy in the US cheese price versus the international price. But as Phillip Florida said here several times, sometimes the US price has to go to a level where you’re able to put a sign up and wave your hands and say, hey, there’s a sale going on over here before we attract those international buyers.

00;04;54;04 – 00;04;57;13

And then prices suddenly go higher because we do have exports.

00;04;57;16 – 00;05;00;21

It kind of feels like we’re heading towards that window waving opportunity at this point.

00;05;00;21 – 00;05;22;00

We’re not quite there yet, I don’t think. And I say I don’t think maybe on a spot basis when it comes to the futures basis, which we would say probably has more in dictating exports. I would say the futures over in Europe right now are two, 10 to 15 ish. Here we are after today’s just looking at it here, roughly $1.86 maybe that’s starting to get some attention.

00;05;22;00 – 00;05;35;05

I’m not sure that it’s going to rule the day though. We probably have to see things. You know, we need a little bit more of a difference than that before we’re able to capture those exports. But there’s definitely talk out there that people are kicking the tires and paying attention on the export side.

00;05;35;06 – 00;05;42;23

Gotcha. Well, John, as far as the regions of purchasing by regions, is there anything big that stuck out to you on that front?

00;05;42;24 – 00;06;01;29

Yeah, just looking in here. China, they were here today. They were up 8% year over year. So if we were looking at is China buying more or less this year we would say they’re buying more. They bought 8% more on this auction than they bought last year at the same point in time versus last event, their purchasing was down 11%.

00;06;01;29 – 00;06;23;24

So still a good showing out of China, just not as strong as it was last time. When it comes to Southeast Asia, you know, the other powerhouse player in they’re down 20% year over year, down 19% on an event change. The Middle East was maybe a marginal flex buyer on this one, up 2% on a year over year basis, but up 63% versus the last auction.

00;06;23;24 – 00;06;40;18

When we look at it, I guess we can say, yeah, China was there. The Middle East backed off a little bit. Something I think is important to point out, though, is, you know, there was a little bit less product for sale on this auction than there was on the last auction. I don’t know that it’s the biggest deal, but maybe 6% or so less product.

00;06;40;18 – 00;06;56;18

So I think we need to be cognizant of that. Yes, China bought less, but there was also less for sale. And I think that less for sale was a seasonal element. Right. It’s just we would expect to see those volumes start to step down on the offer a little bit. And as a result, we’d expect to see buyers step down.

00;06;56;18 – 00;07;25;11

If those buyers do stay in here on a seasonal basis. I think that puts us in a situation where prices are going to be sustained or even move higher. If we see those buyers start to step off here, maybe we go lower. I would say, though, on the Chinese side, milk production in China right now. We saw a report this morning down 6.9%, suggests that we could see the Chinese remain buyers in here as they try to make up for a little bit of the loss and the domestic milk supply.

00;07;25;11 – 00;07;38;24

However, we’ve been warned by several different people that’s a good thing to keep an eye on, and possibly that will happen. But domestic demand in China itself for dairy products is still kind of behind the eight ball right now, so we want to be cognizant of that as well.

00;07;38;25 – 00;07;46;17

Awesome. Well, besides those hard hitting facts right there, John, is there anything else that really stuck out of this GTI specifically to you?

00;07;46;21 – 00;08;06;16

You know, I guess I would say it’s interesting that the US nonfat skim price has been able to sustain the premium that it has for so long. And then today as the GTI went higher, we went higher as well. So there still is a bit of a bid out here on skim, and maybe the US is dragging the rest of the world higher.

00;08;06;16 – 00;08;27;25

I just can’t help but feel like the US is maybe at the upper bands of our nonfat potential. Maybe we can go a little bit higher. I feel like in order to do so, we need to see the rest of the world come higher as well. And right now I would say that upwards movement is going to have to come out of Europe, where again, prices are still at $1.22 to $1.25.

00;08;27;25 – 00;08;45;10

Awesome. Well, John, as usual we appreciate all the insight on the global dairy trade. Our next auction together is going to be in two weeks, the middle of November. So we will be back with some more insight on the global dairy trade at that time. But until then, we appreciate it. Everyone tuning in and listening. John, we appreciate your insight as always.

00;08;45;11 – 00;08;49;10

Until next time everyone, have a great week! Even better weekends. We’ll see you in two weeks.

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