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.

(Transcript auto-generated)

00;00;00;10 – 00;00;08;15

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;18 – 00;00;16;04

Hello everybody. Welcome back to another DDT Tuesday. I am your host, Cody Costa. With me, Mr. John Spain. How are John? How are you.

00;00;16;04 – 00;00;18;25

Today doing well, Cody, and happy to be here. Oh, I’m.

00;00;18;25 – 00;00;23;08

Happy to have you here on the 1st of October, our very first GDP of the month of the quarter.

00;00;23;09 – 00;00;27;21

Given me. And you are a man of statistics today.

00;00;27;24 – 00;00;37;27

The facts write them down, their facts. All right. So GDP today down 0.8 percent as an aggregate. But we still had some fireworks within the commodities.

00;00;37;27 – 00;00;55;14

And so yeah you bet Cody let’s start out with I would say the big winner, but it wasn’t exactly the big winner but whole milk powder, which is kind of the heavy weight of the average was up 3.2%. If we look at where futures were forecasting that was going to come in at, it was right around the price it did.

00;00;55;14 – 00;01;35;01

So I think we can go ahead and say that whole milk powder came in right on the expectations. As we move to the other products. It gets a little weirder, though. Skim milk powder came in at down 0.5. I think futures were looking for a little bit more than that. And for those people who watched the GDP round by round, because it’s a very exciting and illustrious job, you would note that we went to a very small supply demand ratio on skim very early, and skim came from -6% to -0.5% over a 5 to 6 round period there on a 1.25 demand ratio.

00;01;35;01 – 00;02;05;15

So just to say that that was a very low supply demand ratio, normally we see a commodity kind of turn off a few rounds after it gets there and we don’t see very many increases. Skim milk powder was able to drag from -6% to -0.5% on a very low supply demand ratio. One thing that the GDP has done over the past few years is made sure that if one commodity looks undervalued compared to the other, buyers can switch their demand out of one commodity and into the other.

00;02;05;15 – 00;02;23;19

My sense is, is that as homo powder was approaching a higher price and skim milk powder was at a lower price, we saw some people who could start to pull some of their demand out of whole milk powder and put it in a skim. I know it’s a little bit of inside baseball, but it is important to point out here that we did see that function take place today.

00;02;23;24 – 00;02;39;10

I think another one I was going to ask you about, John is mozzarella. And I know that’s kind of an outlier. You know, depending on how much it trades and when it does trade. But when you were talking about rounds, it’s actually closed on round four. Does that usually happen or does it kind of drag out a little bit longer throughout the rounds?

00;02;39;15 – 00;03;01;01

Well, Mott’s is one of those newer products to the portfolio here. So for us to say we’ve never seen it happen before, I think that is an accurate statement. At the same point in time, we just don’t have that long of a price history or an action history to look at. So I would just say that this is rare to see so far in the history of mozzarella.

00;03;01;01 – 00;03;14;10

It is rare for us to see this. And it was down 7.3% at 225, as you noted, Cody, we shut it down after about the fourth or fifth round in there, and we saw the other commodities go out as far as 12 rounds or so.

00;03;14;11 – 00;03;21;12

Yeah, I just never saw one shut down. I guess that quick in my opinion, when the other ones lasted, you know, all the way to the bell, if you will.

00;03;21;13 – 00;03;38;08

I think one thing to take away from that is that over the last few auctions, it’s been, you know, it really accelerate at higher was taking the commanding premium on a lot of the other cheeses of the world. So it’s possible that buyers, whomever the buyer was last time said I don’t need it this time. We just saw it move lower.

00;03;38;08 – 00;04;02;12

What we want to point out, though, is that cheddar cheese did come up today. It came out 3.7%. And something to really point out that’s interesting about the cheddar is that, again, this auction was full of interesting little, you know, nuances in here. That contract one cheese for fresh delivery was up 31% and came in at a price of about 262 to 62 a pound.

00;04;02;13 – 00;04;41;22

If we look at contract two, it was only up 2.8%. You know, when we convert that over that comes in 209. So a huge divergence between contract one and contract two. And then contract three goes even lower and successively on out through contract five. In terms of what in the world happened there. You have somebody that appears to need New Zealand cheddar almost for immediate prompt shipment in terms of the amount of volume that’s associated with that, I’m not entirely sure, but I’m assuming it’ll be a small volume in terms of what caused somebody to have to do that.

00;04;41;22 – 00;05;06;22

I know a lot of people were looking in and saying, is that because of the port strike that happened today, at first I would have to say cheese. Let’s think about that and then come back to the idea that I’m not going to say it absolutely had nothing to do with it. But, you know, is an East Coast port strike, and it’s mainly affecting imports because we don’t export a lot out of the East Coast, mainly out of the West Coast, if not right across the border in El Paso, down in New Mexico.

00;05;06;22 – 00;05;30;16

So stepping back and saying what happened here, one can’t help but think that the the chaos that further broke loose in the Middle East this morning between Iran and Israel might not have had an effect on somebody. Again, I have no idea, but somebody that might have been looking for product out of Europe to come down through the Suez Canal, might have seen, hey, I want to bring it out of New Zealand and I need prompt shipment.

00;05;30;16 – 00;05;45;20

It’s the best answer I can come up with because it just doesn’t make sense in terms of is there a shortage of cheese in New Zealand right now that would cause their cheddar to go to 262 for prompt shipment, while their second month is only at 209?

00;05;45;23 – 00;05;57;00

Gotcha. Yeah. Today, out of all days, there seems to be a lot of things happening, not just in our country, but throughout the world that could, you know, greatly impact some of these prices. The way that things move across different ocean front also.

00;05;57;02 – 00;06;29;18

Yeah. So when it comes to cheddar, they came in a 3.7% higher. I would say in all honesty, that is right around where our average block and barrel price are right. Locks 208 barrels two 14.5. So you know we’re right in there. I know as always, it’s very tempting to say, well, we’re probably going to export. I think the response to that is still, maybe I think a lot of people that we speak with in the international world, this GDP contract one was standing would say New Zealand has a lot of cheese for sale for export.

00;06;29;18 – 00;07;02;26

And if the US wants to compete with it, we generally have to be around $1.85. I would also just point out that here, you know, when it comes to butter, you know, butter 82% was down 2.1%. It’s going to come in at about 291. AMF was down 0.1%. And that’s going to come in. You know in that 327 area I want to point this out because Europe has been significantly higher, has been about $4 for both the prompt shipment and for their futures, you know, deferred shipment.

00;07;02;26 – 00;07;25;03

And that has kind of kept the US butter price supported, if not New Zealand’s price supported a little bit through the lens of we’re probably not going to export into Europe, although some people believe that Zealand can. But for the US it’s not a matter of the fact that we’re going to export into Europe as much as we might export into the regions that Europe isn’t going to.

00;07;25;03 – 00;07;43;13

With that in mind, we keep expecting to see the New Zealand’s butter price rally, the European butter price break. What we have seen in the last few days is the European fat price has started to move lower, in some cases very significantly in a very rapid fashion and at the same point in time, the New Zealand price just hasn’t caught a bid.

00;07;43;14 – 00;08;06;25

The US price has not caught a bid. And here we find the US butter price at 275. We are now the cheapest in the world here. So our export prospects have probably, you know, didn’t develop so far and our ability to export into Q1, that opportunity might start to dwindle if that European fat price continues to move lower.

00;08;06;28 – 00;08;20;23

John. The purchases by region. Just looking at the chart from, you know, what we send out to have nothing really sticks out as a big change from the last GDP had two weeks ago. Is there anything that you saw differently that I didn’t on the regions?

00;08;20;28 – 00;08;41;14

I guess something that does stand out here is event over, event change again, Middle East, 14% higher than the last event. I just can’t help but think that has something to do with that cheese price. Maybe not when we go to China. A bit of a nuanced result here as well. When we look at it from a year over year change up 10%.

00;08;41;14 – 00;09;03;04

When we look at it from an event change from last auction down seven, that’s again a bit of a confusing outcome, simply from the idea that we have looked at it through a lot of different lenses and one of which is, hey, the Chinese are coming back to the GDP, but they’re always here. Same point in time. And if they’re going to be here, this is the time of year they’ll be here.

00;09;03;04 – 00;09;20;18

I think, you know, we’ve been saying let’s look at it. Do they overperform seasonally when we look at it from an event over, event change again down, I guess we would expect that. But from a seasonal standpoint they’re up 10%. We got to put that in the bullish camp to find people a fresh agenda, which I encourage everybody to seek out their information.

00;09;20;18 – 00;09;44;25

They have, you know, been quick to point out, just be careful. Overall, Chinese purchases continue to disappoint around the world. We are seeing more of their purchasing come to the GDP, and that does give at least the illusion that, hey, look, China’s back at the same when it’s high. And when we look at their actual import data, it does not support the idea that China has purchased a lot more.

00;09;44;25 – 00;10;04;19

And then again, something else is developed here in the last couple weeks is that the Chinese have instituted some pretty significant stimulus plans for their economy, that we can look at that and say, that should be good for dairy demand. And at the same point in time, we’re seeing them say we want to support local dairy consumption and the local dairy production.

00;10;04;19 – 00;10;25;07

That’s a really hard thing to dig through. Yes, there’s going to be more demand, and overall, this could spur more demand for dairy products. At the same point in time, we expect to see them support their own domestic dairy herd, and we just don’t know what that’s going to look like at this point in time. So again, that’s just taking in the China or the rest of the groups there.

00;10;25;07 – 00;10;35;21

Southeast Asia, when we look at it versus last year, they were down 12%, you know, and then up 14% on an event over a change. So nothing real significant to look at there.

00;10;35;21 – 00;10;50;10

Cody. Well, John, as always, we appreciate your insight into the global dairy trade. You and I are going to be back together here middle of the month on the 15th of October for the next GDP. We appreciate everyone tuning in, listening. Until next time, have a great week and even better weekend. We’ll see you on the 15th.

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