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;20 – 00;00;15;27

Hello everybody. Welcome back to another Get Tuesday. I’m your host, Cody Koster from Chicago with Mr. John Spain. How are John? How are.

00;00;15;27 – 00;00;25;10

You? Hey, Cody. You know what? When I came in the office today and saw that were here my whole day, got better. I haven’t seen you in over a year now, and it’s just so exciting to have here in the office in person.

00;00;25;14 – 00;00;31;03

I am definitely happy to be here to go over some global dairy trade on the 15th of October.

00;00;31;05 – 00;00;31;24

Let’s do it.

00;00;32;00 – 00;00;36;14

All right. So get indexed today. Flat 0.0. Not up or down.

00;00;36;15 – 00;00;42;29

That’s correct Cody. It was a completely flat on 0.0. When we look at it on a auction to auction metric.

00;00;42;29 – 00;00;44;15

What do you want jump to do first? Mozzarella.

00;00;44;16 – 00;01;14;01

Oh there’s so much to jump into on this one. But yeah I think mozzarella is going to be the stand out here. Mozzarella was down 8.1% down to 207. Think it was the last auction. It was down almost that much if not a little bit more in between the two. From two auctions ago to today, we’re down 18% in there again, going to register in about $2.07, I guess, as always, you know, we’ve been warned by people that are familiar with this auction, especially on the mozzarella.

00;01;14;01 – 00;01;32;20

Just be careful trying to compare apples to apples and just know that there can be a very limited volume of selling, sometimes a very limited volume of buyers as well. And so here we see mozzarella down 8.1%. Conversely, though, the cheddar price that front end cheddar price had a pretty big run there two weeks ago on that last auction.

00;01;32;20 – 00;01;58;02

And it really didn’t give up much here today. We were up 2.1%. It puts the New Zealand Cheddar price at about $2.13. Again, very limited selling on there. However it did go up if we look at our cheeses here, if we look at the cheddar cheese at 213 and mozzarella at 207, we saw a mozzarella go from a big premium to, you know, breaking it down here to actually trading at a discount to cheddar.

00;01;58;02 – 00;02;06;06

So you know the flat price of Mott’s is down. But most importantly it’s now down below cheddar, which probably does make a little bit more sense. Absolutely.

00;02;06;06 – 00;02;14;12

Now skim on the other hand skin. We were projecting a little bit higher than -1.8% from last Tuesday’s pulse.

00;02;14;12 – 00;02;42;13

Correct? You bet. I think the skim price out here was expected to be higher. I think the futures were around 2900. In some case, maybe 3000. Skim came in at 2745, which was down 1.8%. I think that’s going to be seen as a disappointment to the marketplace again, being down 1.8%, coming in at 125. If we look at where we think Europe is right now, according to one of the Dutch indexes, it’s about $1.25.

00;02;42;13 – 00;03;01;00

Now let’s look at the US. We’re at 135. We came in the day a little bit higher than that. I believe that this is going to be seen as a disappointment. We’ll see. I mean the futures start to move a little bit lower, probably in response to this. I do think the US is going to respond and probably already has.

00;03;01;00 – 00;03;18;11

Spot prices were down a little bit today and our futures curve was down a little bit too. But keep in mind the US spot price at 135 is a dime higher than both Europe and New Zealand. Our futures are higher as well, so we need to keep that in mind.

00;03;18;11 – 00;03;29;00

Kind of piggybacking off of skim milk butter on the other hand higher on GDP and I’d say during spot today flat but quite a bit of loads trading on the American side today this week actually.

00;03;29;00 – 00;03;54;29

Yeah. Let’s just look at it through the context of the GDP here. We saw the start out with we saw AMF up 0.2% coming in about 328, whereas the butter responded by going up 1.4% to 295. I think it’s important to point out here on this one that New Zealand was the cheapest butter price in the world for a long time, and if there’s anybody that we can expect to get butterfat into Europe, it should be New Zealand.

00;03;55;02 – 00;04;12;26

In fact, we heard and read some of the first New Zealand butter fat has been spotted in the EU warehouses by our friends at Troy going on. It’s a really interesting to see that printed there. I know that was something that the Fresh Agenda team on our side was expecting to see happen, and here it happens. So we would expect to see that happen.

00;04;12;26 – 00;04;32;29

And what you might think would happen is at the same point in time that we would see New Zealand prices start to increase and European prices start to decrease, and possibly the US as well. But most importantly, looking at these two, what we have seen is the European price decrease in some cases moving from a spot price of $4 to 350 and futures starting to move lower.

00;04;33;00 – 00;04;53;18

Yes, 1.4% is higher on New Zealand butter, but I wouldn’t call that a big response from an export relative value standpoint. So in the end, I think that the butter side to me this is still a little bit disappointing. I keep waking up expecting to see that GDP butterfat really start to move higher and start to converge on that EU price.

00;04;53;21 – 00;05;14;04

So far, all we’ve seen is the EU price starting to move lower. Again, limited volumes have made it into the EU, probably seeing EU milk production start to increase. But we still look at it to see the New Zealand butter price should go up. And speaking of butter prices that should go up. The US butter price right now came into today’s auction at 261.

00;05;14;04 – 00;05;38;14

Today’s GDT auction finished off at 295. The US is by far the cheapest spot butter price in the world right now. If there’s anybody that might see some exports, at least on a spot basis, should be the US. Again, we like to remind people though our butter is 80% salted, the rest of the world is generally looking for 82% unsalted, where it’s hard for us to export that salted stuff.

00;05;38;14 – 00;05;56;25

What we can see, though, is if we can hold that relationship with the EU for what it looks like right now, specifically on the futures basis, we could get some contracted 82% unsalted butter to leave the country to tighten the US butter market up. I just want to make it clear we’re probably not going to export to Europe.

00;05;56;25 – 00;06;03;20

If that happens, it would probably be going to destinations like the Middle East that Europe is currently exporting to.

00;06;03;20 – 00;06;19;09

All right. Now, one caveat that I’m going to mention, because I walked in here extremely excited about China being back in the buying seat, but like you had mentioned to me and kind of calmed me down on China, might have been back, but there are other countries that were maybe a little bit lackluster in the buying for this auction.

00;06;19;09 – 00;06;39;08

I wish I had a word for my own personal struggle to understand what’s going on with China. And you know how we view things. If we look at this GDP and the action on here, go to your exactly right. The Chinese participation is 7% higher on an event over event basis. If you remember, last week’s auction wasn’t so bad, right?

00;06;39;08 – 00;06;59;07

If we look at it a year over year, we’re up 26%. So in the last 3 or 4 auctions, maybe even five now we’ve seen Chinese participation really increase. We’ve really seen them come in here and take on a lot of product. It has always been very tempting to look at that and say China’s back, right? It’s not one auction, it’s not two.

00;06;59;11 – 00;07;19;23

Here we are at our fourth and fifth auction of pretty big Chinese purchasing. So it is hard to not view that and think that that is pretty important to the market. However, our friends at Fresh Agenda have been quick to point out to us and very skilled at pointing out that what we are seeing here on the Chinese purchasing is interesting.

00;07;19;27 – 00;07;39;08

It is important. It is demand. However, what we are likely seeing is a shift of Chinese market share, meaning that the Chinese are not buying out of Europe and they’re buying more out of New Zealand and possibly even if it’s the same amount out of New Zealand, they’re buying more on the GDP as opposed to a contracted basis.

00;07;39;08 – 00;07;57;27

It is kind of giving a little bit of an illusion that Chinese demand is really back and it is in force. I also want to point out here on this GDP that if I look at that Chinese demand number that was here this time, we probably would have expected a little bit better of a response than what we saw on this auction.

00;07;57;27 – 00;08;20;08

Again, the overall auction came in at completely flat. We would say skim down 1.8. Whole milk powder was down 0.2. The fat, as we noted, generally unchanged. And the cheeses were, you know, however you want to look at it probably net net lower, but huge Chinese purchasing. What the heck happened here? One is we have to remember there are big volumes that are coming to the auction right now.

00;08;20;09 – 00;08;43;03

This is high tide for New Zealand milk to be auctioned off. So there’s a big supply here at the same point in time, regions like the Middle East who have been power players here over the course of the last 6 or 7 months. Event over event. Auction change down 36% year over year, down 33%. Get it in the Southeast Asia looking at their event over event down 4% year over year 19.

00;08;43;03 – 00;09;05;19

So China really did step up. We are seeing them take it on. But there is a lot of supply. And at the same point in time, some of our bit players like Southeast Asia and the Middle East just aren’t there in force like they have been had. We had the combination of all of these players. At one point in time, we probably would have seen a higher result, especially for homa powder like we have over the last few auctions.

00;09;05;19 – 00;09;11;21

Instead, here we sit with a 0.0% change on extremely high Chinese participation.

00;09;11;21 – 00;09;24;19

Awesome, awesome. Well John, as always, thank you for the great insight on the global dairy trade that we had today. John and I are going to be back with you guys. The first part of November in two weeks. But until then, have a great weekend and even better week. We’ll see you next time.

00;09;24;20 – 00;09;25;22

Great to have you here, Cody.

00;09;25;23 – 00;09;26;21

Hey, I appreciate it, buddy.

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