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;25 – 00;00;17;11

Hello everybody. Welcome back to another Get Tuesday. I’m your host, Cody Costa with me from Chicago land, Mr. John Spain. Howard. John, how are you today.

00;00;17;14 – 00;00;19;12

Doing well, Cody, and happy to be here.

00;00;19;17 – 00;00;33;06

We are happy to have you here, my friend. It is the 17th of September. We just had GDP this morning up as a total 1.3% today. Little bit better than it was two weeks ago. So back in the positive for GDP.

00;00;33;08 – 00;00;52;14

That’s right Cody. We had quite a few positive results and a row starting in the middle of July. On the last auction, we actually stepped back a little bit. And then this auction we had a positive outcome once again coming in at 1.3% higher on a weighted average price.

00;00;52;19 – 00;00;59;13

And it looks like whole milk powder and cheddar cheese kind of led the way as far as commodities went today.

00;00;59;13 – 00;01;20;12

You know, it was kind of a mixed bag. And here we’ll say skim milk powder came in at 2% higher. Looking at the GDP futures, I would say they came in maybe a little bit lower than expectations on that. And there might be some people that are a little let down by this 2% increase. I would point out that skim is at one at 27 on the GDP.

00;01;20;13 – 00;01;44;21

European prices are a little bit higher than that. And that 128 area. And our spot price here in the US nonfat is at one 39.25. So yes, an appreciation on the GDP skim price today but still trading as much as $0.12 below the US nonfat price. Whole milk powder. This is the big weight if you will. Came in 1.5% higher that going to come in.

00;01;44;21 – 00;02;15;10

You know I would say right on expectations with where the futures were futures. We’re looking for about that price and that’s what they got. Interesting to see that just from a historical perspective. We had two higher whole milk powder prices in a row last auction. We stepped back and then this auction again back into higher territory. As we move to the cheddar side and the cheese side, at least cheddar up 2.7% at $2.01, mozzarella up 4% at 243.

00;02;15;10 – 00;02;33;24

Again, that match number coming out of Europe. This is not a New Zealand mozzarella price. This is a European price. And that was trading at about 243. When we get to the cheddar side again at 201 on the exchange today. And then finally as we get to the butter side, I think this is the one that everyone’s still kind of scratching their heads at.

00;02;33;24 – 00;02;56;28

Butter came in 1.9% lower at 297 on an 82% basis. AMF came in 1.2% lower at 327 a pound. When we convert it into butter. I guess what is confusing about that to a lot of people is right now we’re looking at European butter trade as high as $4 a pound, and then when we come back here to the US, we’re at 309.

00;02;56;28 – 00;03;10;01

I think people are looking in saying, boy, if Europe’s really got a problem, we should be seeing those fat prices in the other regions pick up. And right now at least that is not happening. And I think that’s just important to point out.

00;03;10;02 – 00;03;28;11

Yeah, I mean, that dollar discrepancy that you’re talking about that we saw from the futures trading. So what happened on the GDP is a pretty big expansion on that front. And I guess switching hands a little bit, John, you and I talked previously before we jumped on the podcast here about total purchases by region. And I had made the comment that it looked like China was back in a big way.

00;03;28;11 – 00;03;41;12

But you brought up the fact of if you look at it year over year, not so much auction to auction two weeks ago, yes. But I guess the year over year. Can you hit on that a little bit, as that is probably a bigger factor in the market right now?

00;03;41;13 – 00;04;02;06

Yeah, it’s a bit of a nuanced discussion, Cody. There is no way that you can look in at this and say, well, this wasn’t impressive on China’s part. This is several auctions in a row. Now that we’ve seen them participate. They have been, you know, had been largely absent for most of the year. And over the course of the last four auctions have really stepped in.

00;04;02;06 – 00;04;29;07

That is pretty incredible. And we don’t want to take away from that when we look at it, as you mentioned, versus the last auction, they were up 10% versus the last auction, and that auction was up pretty big right on their volume, where I think the nuance piece of this comes in is when we look at their purchasing behavior on a historical basis, right around now is when we see them put in their big purchase of the year, right.

00;04;29;07 – 00;04;50;05

This is historically their highest volumes of the year, and it also generally corresponds with some of the highest volumes coming out of New Zealand. So if they’re going to make a purchase, I think they want to make sure. Do they buy a lot? They also are going to buy it in line with where the most liquidity is on the sell side, right, so that they’re not going to have as big of an effect on prices when they come in.

00;04;50;05 – 00;05;07;12

So again, yes, they were here. Right. This is when we would expect to see them put in a big number. However, when we compare it to last year and again, I don’t want to make it sound like this is cut in the cards here. I just want to point this out that on a year over year basis, it is still down 14%.

00;05;07;12 – 00;05;33;05

So impressive that they’re here. And maybe we just continue moving on out from here. My guess is we see them still in here. On a relative basis, but that we see their volume start to back off. Now again, we look in and say, why would they be in here? And I don’t know that there’s other than this seasonal buying pattern, I don’t know that we would say, hey, there’s a tremendous reason we do know their milk production is down a little bit.

00;05;33;05 – 00;05;56;14

We know that they’re likely going to restock a little bit. And at the same point in time, there are no economic signals coming out of China saying that a their economy has gotten any better, or b that their dairy demand has gotten any better. When we look at the few of the key financial stocks of firms that trade in China, there are certainly no signs coming out of that that says things are getting any better.

00;05;56;14 – 00;06;15;10

So again, right now we’re forced to continue to look at this through a bit of, okay, they’re doing some restocking. That’s a good thing. But probably see them step back from here. Now it just becomes how hard do they step back right. Do they outperform on a seasonal basis or do they really start to step away from this market.

00;06;15;10 – 00;06;18;10

And I don’t think that those questions have been answered yet.

00;06;18;13 – 00;06;31;00

Okay. So we can just as of right now just kind of stock this up to a seasonal restocking that happens generally every year towards the end of the year from China. And I guess the next two auctions, three auctions are really going to give us the tale of what’s truly going on over there.

00;06;31;00 – 00;06;51;23

Yeah. You hate to sit there and keep watching it and say, well, I need to wait for next auction to find out, right? But certainly been a very impressive run that they’ve been on. But again, when we step back from when we say, well, this is the time that they should be here, and again, this one, their presence here versus the last time kind of backed off a little bit where we did see probably a change on this one was southeast Asia.

00;06;51;23 – 00;07;18;19

Southeast Asia continues to kind of fight outside of their weight class here. So they were off a little bit versus the last auction, but still 42% higher on a year over year basis. So it is really impressive to see them continue to be here as well as the Middle East. It makes sense for the Middle East to be here if one of their main key suppliers is Europe and European prices keep climbing, we expect to see them swing over to other regions to find that supply line.

00;07;18;19 – 00;07;33;28

I guess something that really flies in the face of that is this butter price. If you’re the Middle East, we would expect to see at $4 butter versus $3 butter. We would expect to see a lot of demand show up here on the GD fat prices. And that simply is not happening at this time.

00;07;34;05 – 00;07;54;11

Well, John, as always, we greatly appreciate your insight into the global dairy trade. Next time you and I will be back together, it’s going to be two weeks beginning of October for the next global dairy trade. But until then, everyone, we appreciate you tuning in listening to John essay about the global dairy trade. Hope you have a great week and even better weekend.

00;07;54;14 – 00;07;56;25

We will see you in two weeks on the next episode.

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