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;23

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;26 – 00;00;22;04

Hello everybody. Welcome back to another GDP Tuesday. We are actually coming to you on Wednesday, the 4th of September day after the GDP auction. I am your host, Cody Koster, with me from Chicago. Mr. John Spain, how are John? How are you today?

00;00;22;04 – 00;00;27;05

Doing very well, Cody, and happy to be back after our long Labor Day weekend.

00;00;27;08 – 00;00;39;05

Absolutely. We jumped right in. Markets were moving get was moving. We had a lower auction, a little bit different than we had two weeks ago. And we had that kind of robust trading on the GDP, this one maybe a little bit slower.

00;00;39;05 – 00;01;00;03

You know, Cody, this was a bit of a different auction to sift through the information on. I will say, on the opening rounds of the GDP, something that really stood out was that the supply demand ratio, which we’re able to see round by round on whole milk powder, you know, had been very strong over the course of the last few auctions.

00;01;00;03 – 00;01;22;22

And on this auction, it started out on a two number. And for those of you who aren’t familiar, without getting too far into the weeds here, it’s just, you know, we take the amount of product for sale and the amount of product that people are willing to buy and when they outweigh each other, you know, if there’s more willing buyers and sellers and we have a high supply demand ratio, and when there’s more supply than buyers, we tend to get a low supply demand ratio.

00;01;22;23 – 00;01;44;19

We’ve been opening on the higher tier of that for the last few auctions. And on this one whole milk powder, instead of being at a three or A25 open on a two. And the net result of that is whole milk powder was actually down 2.5% on this auction, which is just a little bit different. This is the first time we’ve seen whole milk powder step back, and a quite a few auctions here.

00;01;44;19 – 00;02;09;12

If you remember, we have been moving higher on the back of Chinese purchasing over the course of the last few auctions. So we had a little bit of a step back here on the other products like skim milk powder though, skim milk powder came in 4.4% higher, up to a price of 125. Just to give a little bit of context to that, the U.S. nonfat market came into yesterday trading at 133.

00;02;09;12 – 00;02;28;21

So our nonfat market has been a little bit higher than the rest of the world, as well as we’ve been higher than Europe. So I think what we’re seeing here is a skim milk powder market in New Zealand came up at least to the European price. Both the European price and the New Zealand price are still below the US price.

00;02;28;21 – 00;02;46;24

As we move to the fat side of things, this is where I think people were looking for a lot of action in here. Right now, the European price of butter is almost $4 a pound in Germany on an 80% converted price. That’s just a big number out there. I think people have been looking here in the US and saying, hey, we’re at 320 to 315.

00;02;46;24 – 00;03;13;01

There’s a lot of space in between there. But most importantly, when we look at the GDP, their fat prices are down right around $3, so they’re even cheaper than ours. There are some free trade agreements that are going on between Europe and New Zealand right now. I think a lot of people thought, hey, this is going to be a time when we see the fat really take off as people try to scoop up that fat in New Zealand and bring it into Europe and calm that market down over there, that simply did not happen.

00;03;13;01 – 00;03;38;16

At least on this auction, AMF settled 0.9% higher and butter settled 0.5% lower on an 82% equation. There, butter settled at 303 on an 80%. I would put that down more around 298 to 299. So again, a lot of expectations there on the butter. That just did not happen. On the cheese side, we saw cheddar go up a little bit to 1.2% higher, settling at 196.

00;03;38;16 – 00;04;02;25

That is below the U.S. price as well as below the European price. So Cheddar in New Zealand still trading at a discount. Finally, when we get over to mozzarella again, we have to be very careful with this number. It did trade 7% higher. It is at 233. That is in line with European prices. And as of right now I think the only product that’s trading on the auction for mozzarella is European product.

00;04;02;25 – 00;04;16;07

So this 233 came up again 7% and is in line with some of the mozzarella prices that we have heard in Europe. However, that price is still well above the U.S. price and again below the New Zealand cheddar price.

00;04;16;13 – 00;04;29;03

But I think you said it on mozzarella before, John. That one’s kind of a different animal in itself as there might be and in this case 7% higher. But the volume traded might not be as tangible as like a whole milk powder. Or maybe the butter trades.

00;04;29;03 – 00;04;52;05

It’s the volume and location. We always have to remember that there can be transport nation reasons, as well as tariff reasons that can create quite a bit of differentiation between prices from different origins. Overall, though, Cody, the change in the weighted average price here was -2.2%, and I think that was mainly taken down by the whole milk powder.

00;04;52;05 – 00;05;16;19

You know, that just represents such a big bulk here. Came down 2.5%. Something else I would like to add is the whole milk powder futures had a tremendous amount of expectations in there. They were looking for prices to get in some cases as high as 10% higher. And they came in a little bit lower. And futures, the futures were again looking for a really big move here that didn’t happen.

00;05;16;19 – 00;05;35;13

And then they settled lower. So we saw powder futures this morning or in the overnight if you will, having moved lower and pulled back pretty substantially from the highs that they were trading at just the other day, I would say that on the skim milk powder side, we saw prices disappoint as well as compared to the skim milk powder futures.

00;05;35;13 – 00;05;52;15

But in contrast, skim milk powder futures have continued to move a little bit higher. So they looked at the result of this and said, hey, there’s probably even though we didn’t live up to the futures prices, there’s probably still some room to grow. Whereas whole milk powder had such a big premium built into it. And again it’s settled lower.

00;05;52;15 – 00;05;55;09

And we’re seeing a pullback right now on whole milk powder futures.

00;05;55;13 – 00;06;08;11

I think on the other side of the coin, John, the buying power, the regions that were back here I mean China was still in the mix. And this auction maybe not as much as they have been in the past, but still three auctions in a row. I believe that is where they have shown their presence.

00;06;08;11 – 00;06;29;00

Now you bet. China. You know, again, if we were to look in at the auction during the round buy round again, I mentioned earlier that supply demand ratio was off a little bit. I think, you know, at first you look at it and you say, geez, maybe China’s not here, but it appears as though China when we get the geographic breakdown after the auction, China was very much here.

00;06;29;00 – 00;06;52;26

They did a pretty big slug of buying. They bought 11% more than the last auction, and they bought 44% more than the same auction last year. So China is here, southeast Asia bought more on this auction than they did last time. So combined China and Southeast Asia did a pretty good chunk of buying, but it appears they did more of that in skim as opposed to whole milk powder.

00;06;52;26 – 00;07;13;25

I would also point out that, you know, something that could lay a little bit of responsibility to the prices moving lower, as it was quite a bit more product on this auction than there was on the last auction. 10% more volume went up on the auction here. So that throws that supply demand ratio off. You can look at that and say, hey, look, there’s more product and prices went lower.

00;07;13;25 – 00;07;34;24

I’m going to look at this little here and say, wow, that’s impressive. We threw up 10% more volume. Whole milk powder only went down 2.5% and skim up 4.4. I mean, it’s hard to look at that and say, wow, that’s really bearish. I mean, it just really seems supportive at the very least. Maybe we came into a period or a point of consolidation in pricing at the moment.

00;07;34;25 – 00;07;51;05

Finally, I would just like to point out, you know, we’ve been looking at it in here and saying, why is China, who has been absent for so long? And for those of you familiar with this podcast or those of you who follow the GDP, you know that China has just not been here in the way that we would normally expect.

00;07;51;05 – 00;08;11;19

There has been a lot of reasons for that. We’ve seen increased domestic milk production. We’ve seen decreased domestic demand in China, that is, and the net result is them coming to the export markets or markets that might, you know, be able to export into China. We’ve seen their volumes really low. So I don’t know that we’ve seen huge changes in that dynamic.

00;08;11;19 – 00;08;32;19

And to say, well, why is China buying so much? I think there are two things I want to look at. One is that last year, right around this time, is when we saw peak Chinese buying. I think that also corresponds with, you know, some peak volumes that are posted on the GDP. So I think if they maybe reserve some firepower for, hey, when is there going to be the most amount of product on the market?

00;08;32;19 – 00;09;05;18

And they came in, typically we start to see their volumes, you know, even in the best of years, we typically start to see their purchasing start to pull back a little bit as we move forward. Now that the peak volumes are gone, maybe we’ll see that moving forward. Here. Something else I want to point out is that, you know, it’s very difficult to get inside of the middle of it, but I read an article on Bloomberg this morning that there are tariff war that’s kind of sprung up between China and Europe or the EU, if you will, related to EV cars, where Europe is putting a tariff on Chinese EVs entering the continent.

00;09;05;18 – 00;09;34;17

And one of the responses is that China is putting a tariff on some EU dairy products. And there’s a possibility, I guess, to say, hey, this purchasing that we’re seeing here on the GDP might be in response to that, where if you’re a Chinese buyer and you have been buying out of Europe and the Chinese government is going to put a tariff on EU origin products, maybe you’re saying, you know what, I’m going to come back to New Zealand and start to increase my purchases there to make sure I get the best price?

00;09;34;17 – 00;09;53;26

Hard to tell. I don’t know. We’re all still kind of looking in at this Chinese purchasing and saying. What change that really got them so excited. That may be part of it. We’ll see. So it’ll be interesting to see if the net imports to China increase during this time, or if it is more of a moving around where we’re getting the different products from.

00;09;54;01 – 00;10;09;06

Yeah, I would definitely see the uptick in the past three auctions a month and a half, I’d say. And I guess we will have to wait for another two weeks to see if China is back again in the buying seats. Yeah. As always, we appreciate the insight for global dairy trade that you can share with us every two weeks.

00;10;09;06 – 00;10;18;08

As I mentioned, John and I will be back with you in the middle of September on the 17th for the next GDT auction. Until then, have a great week, even better weekends, and we’ll see you next time.

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