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Parlor to Plate – July 17, 2024
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In the latest edition of the Parlor to Plate dairy podcast from Ever.Ag Insights, our all-star panel discusses risk management. How are feed costs shaping up for the second half of 2024 and into 2025? What direction are milk prices likely to take? And what strategies can producers use to protect their operations?
Join host Kathleen Wolfley and panelists Brian Fletcher, Zach Bowers and Jake Kingsley for a spirited discussion.
Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].
Show Transcript
(Transcript auto-generated)
00;00;00;10 – 00;00;02;26
VOICEOVER
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;27 – 00;00;34;07
KATHLEEN
Hello and welcome to Parler to Play, a weekly podcast from Rag Insights, dedicated to offering listeners enlightening discussion and actionable intelligence about dairy markets. I’m your host, Kathleen Wolf. We are excited to have you along for the ride. If you like what you hear, please like us. Subscribe and tell a friend or two. Let’s timestamp today’s episode. It is Wednesday, July 17th, around 1 p.m. central time.
00;00;34;10 – 00;00;57;25
KATHLEEN
Here’s a quick rundown of the market. See Me Black Cheddar closed at $1.86, down $0.11 from a week ago. Barrels finished at $1.91 $0.03 lower. The Spot butter market closed at 313, up $0.03 on the week, and the Nonfederal milk market finished at $1.17, a penny and a half lower. Now for the grain market. September corn is trading around 398 per bushel, up $0.02 on the week.
00;00;57;26 – 00;01;22;13
KATHLEEN
August soybeans at 1096 per bushel, down $0.17. And the August soybean meal market is trading around 339 per ton, more or less unchanged on the week. It is a new week and yet another all star panel from the financial services team from Chicago. We have Brian Fletcher. He helps processors and end users manage risk from Wichita, Kansas. We have Jake Kingsley, who helps livestock producers manage their feed exposure.
00;01;22;14 – 00;01;30;22
KATHLEEN
And from the other side of the office in Chicago, we have Zach Bowers, who works closely with dairy producers to manage Risk Team. Thanks so much for joining me today.
00;01;30;28 – 00;01;32;19
JAKE
Thanks for having us. Thank you Kathleen.
00;01;32;25 – 00;01;46;01
KATHLEEN
Thank you. If I may, before we get started, I do have a question for you all. Aside from our stellar personalities, of course, the ever AG team tends to be a little bit of a music loving bunch. So I’m curious at summertime, what are you guys jamming out to?
00;01;46;05 – 00;01;53;04
ZACH
Great question. I tend to lean country in the summer, so I’ve been doing a lot of. Morgan Wallen had to be my top listen right now.
00;01;53;07 – 00;01;54;07
KATHLEEN
All right, Fletch, what about you?
00;01;54;11 – 00;02;18;05
BRIAN
I would say in the average Chicago office, the playlist gets tossed between 2 or 3 people in the office, and it ranges from Country We Barbecue, which would be a mix of what I like to say, Wisconsin rock and roll. All of our friends in Wisconsin. I think they’re familiar with what that is, but I would say it’s a mix of 70s and 80s rock and roll.
00;02;18;07 – 00;02;28;26
BRIAN
And then the other playlist is I’m not as familiar. I don’t know what the actual name is. I think it’s a 90s playlist, so we’ve been going back a few decades and listening to some old hits recently.
00;02;28;26 – 00;02;31;18
KATHLEEN
Perhaps shows the average age of the Chicago office.
00;02;31;18 – 00;02;41;23
BRIAN
Well, even the stuff in the 90s. We like to quiz the younger generation to know if they know any of the songs. They’ve gotten a lot better. I think a few of them got a hold. Shazam!
00;02;42;00 – 00;02;43;02
KATHLEEN
All right, Jake, how about you?
00;02;43;03 – 00;02;52;21
JAKE
Well, I’ve put together a pretty diverse little playlist for the like, the summer. So a little bit of everything on there. Still a healthy dose of our good friend Taylor Swift.
00;02;52;21 – 00;02;53;13
KATHLEEN
Obviously.
00;02;53;14 – 00;03;05;27
JAKE
Throughout the week, but the overwhelming majority of our airwaves are consumed by Toy Story and Frozen soundtrack right now. Got a two year old that’s very, very interested in those two movies.
00;03;05;29 – 00;03;22;29
KATHLEEN
Yeah, I will say that I’ve been jammin to the new Johnnie Blue Skies Sturgill Simpson album that came out last week, but usually when I play music in my car, I get told by my two year old to turn it off so we don’t get a lot of time to jam out to music in the Wolf household. But anyway, that’s enough about music.
00;03;22;29 – 00;03;44;10
KATHLEEN
Let’s get into it. It’s been a while since we’ve talked about risk management and just purely risk management on this show, and now that we are squarely in the second half of 2024 and barreling what feels like full steam ahead toward 2025. Curious, what are you guys seeing as some of the big risks the big opportunities in the market, and how are you helping customers navigate them?
00;03;44;11 – 00;03;45;13
KATHLEEN
Jake, let’s start with you.
00;03;45;19 – 00;04;09;04
JAKE
Well, if you’ve been paying any attention to feed markets at all here lately, I’ve noticed that they’ve really fallen off a cliff, both in corn and soybean meal and all the other commodities that trade around those two futures markets. We have now reached some low points in corn and soybean meal futures that we had not seen since 2020 and 2021.
00;04;09;04 – 00;04;36;06
JAKE
And so we’re having folks step in and buy some physical feed at this point. I mean, virtually anywhere across the country, the cash price on feed is palatable enough to buy some amount. Most folks are stepping in and getting at least a quarter of what they need for the next crop year. But some folks have bought half or three quarters or 100% of what they need of certain commodities, really dependent on where you are in the world and what your local vendors are offering.
00;04;36;06 – 00;04;43;29
JAKE
But for the first time in a while, we’re stepping out pretty early and buying some very nicely priced feed ingredients for the next crop year.
00;04;44;05 – 00;04;58;05
KATHLEEN
Zach, I’m curious from your perspective, you’re working with dairy producers. Folks are looking at these lower feed costs and Q4 class reprice. Is it around 20 bucks class for around 21? Are they looking at these values and saying, hey, this makes sense from a margin perspective?
00;04;58;09 – 00;05;15;29
ZACH
Yeah, I think that they definitely are. And I think that’s definitely the narrative. We’ve been kind of driving in everybody’s head right now is whether they’re doing it or not. It feels like we’re in a very lull summer right now. But yeah, taking a look at where margins are at and, you know, you’ve got $4 corn, $20 milk, I don’t know if that’s ever last very long in history.
00;05;15;29 – 00;05;35;25
ZACH
Probably not. Right. So something is going to change there eventually. Right. And so we’ve been looking at a lot of getting your floors on class three in your class four out there via DPI. Buy calls on your feed side of things. You got availability for it go higher. You got feed can go lower. And so we’re really using a lot of optionality there to take advantage of this margin while allowing for, you know, a lot of people are very bullish right now.
00;05;35;25 – 00;05;54;25
ZACH
Basically on the supply side story, right. That milk is tight, cows are tight. It’s going to be very hard to grow. And we’re only going to continue to, you know, shrink the herd. Right. So people are very optimistic price going into the back half and into 2025 because of that narrative. But I don’t think that narrative is strong enough to not take advantage of the margin that is being offered to you right now.
00;05;54;28 – 00;06;01;16
KATHLEEN
Jake, back to you. What’s your expectation as we go into new crop end of 2024 and early 2025?
00;06;01;16 – 00;06;23;02
JAKE
We’ve been having folks take advantage of the market while it is down here, just because these are some of the better prices that we’ve seen in years now. But at the end of the day, we’re still not necessarily bullish on feed prices. We don’t expect them to go run dramatically higher any time soon, but these are just good opportunity to start stepping in and doing something.
00;06;23;02 – 00;06;48;02
JAKE
But at the end of the day, we still have very healthy balance sheets, both on the corn and the protein side of the equation. Their weather patterns have been moderately good. I think some folks have probably had a little too much moisture across parts of the Midwest, so that’s leaving some yield questions hanging over the marketplace. We have a good crop come in, and South America is expected to increase production yet again.
00;06;48;02 – 00;07;15;02
JAKE
They have some very lofty goals for their next crop cycle, which will go into the ground here at the end of 2024 and harvest and spring and summer, our time here in 2025. And if they achieve those, there’s not a lot of reason for prices to move much higher from where they are right now. But at the same time, when you look at a historical chart and what it would take to push a lot lower than we are right now, it just feels like we’re running out of room to the downside for the time being.
00;07;15;02 – 00;07;41;16
KATHLEEN
So, Zach, I want to go back on something you mentioned about we don’t generally see a ton of $20 milk when corn is trading sub four bucks. And I think you’re right that if we look back at history going from, say, 2001 to 2023, when corn was trading between 3 and $4, the average class three price was sub 16 bucks when we saw corn basically above six bucks, then that’s when historically we’ve kind of hit those $20 plus mark.
00;07;41;16 – 00;07;56;26
KATHLEEN
So I think there is a big question lingering out there of can we really sustain at these $20 plus futures prices on the class three side of things? And I think the same is true on class four. Two if corn remains depressed in this $4 or lower area.
00;07;57;03 – 00;08;12;14
ZACH
Yeah. And I tend to think also that driver of that milk corn correlation is probably the corn market. Right. So I’m thinking of it from a dairy producer side. And I like what Jake just said. We’re not super nervous about corn taking off. And that tends to make me believe we’re going to go see milk come off these highs.
00;08;12;14 – 00;08;41;12
ZACH
Right. With milk coming off the highs, I would say from a commercial standpoint you could argue that. And the reason for that would be especially on the cheese side, the cheese market over the last couple of months has largely converged with prices that were trading higher than the US market. So US cheese went from, say, $1.50 into the mid one 90s and we ran right up against where European prices are trading.
00;08;41;12 – 00;09;05;09
ZACH
Since that moment in time, new export deals are really coming into question. And so it doesn’t mean that we won’t continue to export. But the magnitude in which we were over the first several record setting months that we’ve seen so far in 2024 are now in question whether or not that rate can continue moving forward. So you could argue that, you know, that might lead to milk pricing coming on.
00;09;05;09 – 00;09;30;13
BRIAN
I know a debate that we’ve had in our office all the time. Those on the commercial side continue talking to our producer team saying, look at these margins. When is the milk coming? And you keep arguing with us? Zach, and your broader team saying, this time is a little different. And I know we don’t need to harp on the variables as to why it’s different, but doesn’t seem like it’s going to be an instant reaction given what you guys are seeing on the farm level.
00;09;30;19 – 00;09;50;16
BRIAN
Yeah, I think just high level from a livestock standpoint. It makes it hard to point at that margin and say that there’s going to be more milk coming because we just know that the heifers aren’t there, right? You can’t just magically make more cows. So I think that’s what does make this year so interesting and so different, but also nonetheless a margin you should be taking advantage of so much.
00;09;50;16 – 00;09;55;28
KATHLEEN
Back on the commercial side of things, what are some of the opportunities and risks that you’re seeing for your customers?
00;09;56;05 – 00;10;20;07
BRIAN
He’s looked at it through. I’ll focus on two commodities. The first, butter. Butter, has been really interesting recently because we keep hovering around the highs of the year and the spot market. I think the highs were established a couple months ago a little above 316. Today we’re trading around 313. We haven’t broken the new highs, but we keep hovering around the highest tier of pricing we’ve seen all year.
00;10;20;07 – 00;10;47;04
BRIAN
And when you look at the forward prices of butter, they’re not all that much different than the spot price. So when you add in the cost to carry physical butter, the forward curve actually becomes very negative. So on average costs opinion and a half or $0.02 per month to carry physical butter. You apply that to 313. You’re looking at a negative carry by close to $0.25 by the time we get to the month of December.
00;10;47;04 – 00;11;17;11
BRIAN
What that means is if you own butter, then you should be selling it today because there’s no incentive to be holding it and storing it for a higher price later on the year. So we’ve been working with the industry saying, you know what, we tend to peak seasonally later in the year. However, from an economic fundamental reason today the forward curve is saying you should be unwinding today, which goes against, I would say the more seasonal, historic, fundamental price movement.
00;11;17;11 – 00;11;20;11
BRIAN
And the butter market in general tends to see.
00;11;20;12 – 00;11;27;14
KATHLEEN
And we did see those 24 lots trade in Chicago earlier this week, which was the most since August 2023.
00;11;27;17 – 00;11;49;29
BRIAN
Yeah, we’ve seen I think the market absolutely is responding in that way where we’ve seen a big increase in spot activity. So it does appear at least some segments of the supply chain are saying, I’m going to de-risk by unloading some inventory here. What’s really interesting is that it’s met by buyers. So buyers are saying they’re realizing the forward curve is negative.
00;11;49;29 – 00;12;18;01
BRIAN
And they’re saying even with that incentive, which in theory should push them towards buying futures as opposed to spot they’re going out and owning spot anyway. So we would look at that and say they in theory should have an order for that immediately. If you’re going out to take on the spot market, otherwise, from a pure merchandizing or pure commercial hedging perspective, the forward curve after you account for carrying costs is an absolute, you know, much better price than today’s spot market.
00;12;18;01 – 00;12;47;08
BRIAN
The other aspect I want to touch on the cheese and just a follow in on the export comment. It’s been interesting in the cheese market from a spot relative to a fair price basis. The spot market continues to hover in this 190 area, give or take. The forward price of cheese is slightly higher than that. After you account for carrying costs to a certain degree, there is an incentive, a very, very small one, but there is an incentive to go out and buy a spot product and then sell the forward curve against it.
00;12;47;08 – 00;13;13;29
BRIAN
And so there is that. On the other side of that, though, from a manufacturers perspective, I would say their incentive is much more tricky today. And the reason for that, we touched on a little bit, just the export competitiveness or lack of clear price advantage coming out of the US market, I think is causing a lot of manufacturers to flex into alternative types of cheese that can be sold in the domestic marketplace.
00;13;14;02 – 00;13;35;04
BRIAN
Whereas previously, earlier in the year, it was pretty easy to say, make mozzarella cheese sell in the export market. Now, I would say there’s not a clear what to do scenario from a manufacturing perspective. So I don’t have the exact numbers in front of us, but we have seen an uptick in spot sales on the spot cheese side as well.
00;13;35;04 – 00;13;48;03
BRIAN
And I would imagine that is largely being driven by, you know, the manufacturers saying we need to flex into other products that we can just clear into the domestic market until we have a better clear advantage to be exporting again.
00;13;48;06 – 00;14;09;15
KATHLEEN
And because I do have the numbers in front of me, I’ll add that in the first 17 days of the month of July, we’ve traded 32 blocks and 60 barrels. That compares in June to over that same time period, right on pace with June on the black side. And we’re about double the barrel volume.
00;14;09;15 – 00;14;32;24
BRIAN
Interesting. Yeah there’s that there’s an export side. And another aspect that’s kind of more of a domestic related function. But we have heard some hard Italian cheesemakers that would prefer to make hard Italian cheese and sell it domestically have extended cheddar production to sell domestically because the hard Italian community has pushed back on even domestic prices being high.
00;14;32;24 – 00;14;54;13
BRIAN
I think the wild card in here from the cheese perspective, though the insights team shared it earlier this week internally, but from a retail promotional price of cheese in the beginning of July hit the lowest price in over three years. And we’re not talking about the lowest price in July. We’re talking about the lowest price in three years at the retail side.
00;14;54;13 – 00;15;06;08
BRIAN
So a lot of mixed signals out here right now. But I would say from a domestic perspective, that could actually help fuel some domestic demand. After seeing the lowest prices in years at the retail shelf.
00;15;06;08 – 00;15;26;08
KATHLEEN
Yeah, I think the adding to that, we’ve learned pretty quickly here in the last couple of months that value is going to help move product, whether it’s on the retail side or the foodservice front where there’s a deal. People have been attacking those deals. So to your point, could make for an interesting second half of the year in terms of just domestic sales on the cheese side.
00;15;26;11 – 00;15;52;18
BRIAN
Absolutely. Another wild card would be that foodservice side where there’s been such an uptick in foodservice promotional activity. The big question that’s being asked, though, does that matter much for dairy? It might be good for general foodservice sales, but a lot of the products that are being highlighted aren’t necessarily adding more dairy consumption. Or at least it doesn’t appear that that still being debated whether or not it is.
00;15;52;23 – 00;16;10;29
KATHLEEN
Yeah, you just kind of hope from a dairy industry perspective, if they’re heading in for a chicken sandwich deal, that they’re going to grab a cheeseburger while they’re at it. Well, thanks, team. Thanks to Zach, Brian and Jake for joining me on today’s episode and sharing your insights with our listener. Thanks, as always to our media team for mixing and mastering.
00;16;10;29 – 00;16;22;25
KATHLEEN
And thank you to you, the listeners, for joining us today. If you like what you hear, subscribe on your favorite app. And as always, if you’d like to learn more about how we help people manage risk, contact us at Insights at ever Dot egg.
Disclaimer: TRADING FUTURES AND OPTIONS ON FUTURES INVOLVES SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THE INFORMATION AND COMMENTS CONTAINED HEREIN ARE PROVIDED BY EVER.AG AS GENERAL COMMENTARY OF MARKET CONDITIONS. THIS INFORMATION SHOULD NOT BE INTERPRETED AS TRADING ADVICE OR RECOMMENDATION WITHOUT FURTHER DISCUSSION WITH YOUR EVER.AG ADVISOR. THIS IS A MATTER OF SOLICITATION.
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Free download: https://filmmusic.io/song/9520-funky-intro-29
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© Ever.Ag 2023, confidential and proprietary.
The post Parlor to Plate – July 17, 2024 appeared first on .
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By Ever.Ag
5
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Listen Now
In the latest edition of the Parlor to Plate dairy podcast from Ever.Ag Insights, our all-star panel discusses risk management. How are feed costs shaping up for the second half of 2024 and into 2025? What direction are milk prices likely to take? And what strategies can producers use to protect their operations?
Join host Kathleen Wolfley and panelists Brian Fletcher, Zach Bowers and Jake Kingsley for a spirited discussion.
Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].
Show Transcript
(Transcript auto-generated)
00;00;00;10 – 00;00;02;26
VOICEOVER
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;27 – 00;00;34;07
KATHLEEN
Hello and welcome to Parler to Play, a weekly podcast from Rag Insights, dedicated to offering listeners enlightening discussion and actionable intelligence about dairy markets. I’m your host, Kathleen Wolf. We are excited to have you along for the ride. If you like what you hear, please like us. Subscribe and tell a friend or two. Let’s timestamp today’s episode. It is Wednesday, July 17th, around 1 p.m. central time.
00;00;34;10 – 00;00;57;25
KATHLEEN
Here’s a quick rundown of the market. See Me Black Cheddar closed at $1.86, down $0.11 from a week ago. Barrels finished at $1.91 $0.03 lower. The Spot butter market closed at 313, up $0.03 on the week, and the Nonfederal milk market finished at $1.17, a penny and a half lower. Now for the grain market. September corn is trading around 398 per bushel, up $0.02 on the week.
00;00;57;26 – 00;01;22;13
KATHLEEN
August soybeans at 1096 per bushel, down $0.17. And the August soybean meal market is trading around 339 per ton, more or less unchanged on the week. It is a new week and yet another all star panel from the financial services team from Chicago. We have Brian Fletcher. He helps processors and end users manage risk from Wichita, Kansas. We have Jake Kingsley, who helps livestock producers manage their feed exposure.
00;01;22;14 – 00;01;30;22
KATHLEEN
And from the other side of the office in Chicago, we have Zach Bowers, who works closely with dairy producers to manage Risk Team. Thanks so much for joining me today.
00;01;30;28 – 00;01;32;19
JAKE
Thanks for having us. Thank you Kathleen.
00;01;32;25 – 00;01;46;01
KATHLEEN
Thank you. If I may, before we get started, I do have a question for you all. Aside from our stellar personalities, of course, the ever AG team tends to be a little bit of a music loving bunch. So I’m curious at summertime, what are you guys jamming out to?
00;01;46;05 – 00;01;53;04
ZACH
Great question. I tend to lean country in the summer, so I’ve been doing a lot of. Morgan Wallen had to be my top listen right now.
00;01;53;07 – 00;01;54;07
KATHLEEN
All right, Fletch, what about you?
00;01;54;11 – 00;02;18;05
BRIAN
I would say in the average Chicago office, the playlist gets tossed between 2 or 3 people in the office, and it ranges from Country We Barbecue, which would be a mix of what I like to say, Wisconsin rock and roll. All of our friends in Wisconsin. I think they’re familiar with what that is, but I would say it’s a mix of 70s and 80s rock and roll.
00;02;18;07 – 00;02;28;26
BRIAN
And then the other playlist is I’m not as familiar. I don’t know what the actual name is. I think it’s a 90s playlist, so we’ve been going back a few decades and listening to some old hits recently.
00;02;28;26 – 00;02;31;18
KATHLEEN
Perhaps shows the average age of the Chicago office.
00;02;31;18 – 00;02;41;23
BRIAN
Well, even the stuff in the 90s. We like to quiz the younger generation to know if they know any of the songs. They’ve gotten a lot better. I think a few of them got a hold. Shazam!
00;02;42;00 – 00;02;43;02
KATHLEEN
All right, Jake, how about you?
00;02;43;03 – 00;02;52;21
JAKE
Well, I’ve put together a pretty diverse little playlist for the like, the summer. So a little bit of everything on there. Still a healthy dose of our good friend Taylor Swift.
00;02;52;21 – 00;02;53;13
KATHLEEN
Obviously.
00;02;53;14 – 00;03;05;27
JAKE
Throughout the week, but the overwhelming majority of our airwaves are consumed by Toy Story and Frozen soundtrack right now. Got a two year old that’s very, very interested in those two movies.
00;03;05;29 – 00;03;22;29
KATHLEEN
Yeah, I will say that I’ve been jammin to the new Johnnie Blue Skies Sturgill Simpson album that came out last week, but usually when I play music in my car, I get told by my two year old to turn it off so we don’t get a lot of time to jam out to music in the Wolf household. But anyway, that’s enough about music.
00;03;22;29 – 00;03;44;10
KATHLEEN
Let’s get into it. It’s been a while since we’ve talked about risk management and just purely risk management on this show, and now that we are squarely in the second half of 2024 and barreling what feels like full steam ahead toward 2025. Curious, what are you guys seeing as some of the big risks the big opportunities in the market, and how are you helping customers navigate them?
00;03;44;11 – 00;03;45;13
KATHLEEN
Jake, let’s start with you.
00;03;45;19 – 00;04;09;04
JAKE
Well, if you’ve been paying any attention to feed markets at all here lately, I’ve noticed that they’ve really fallen off a cliff, both in corn and soybean meal and all the other commodities that trade around those two futures markets. We have now reached some low points in corn and soybean meal futures that we had not seen since 2020 and 2021.
00;04;09;04 – 00;04;36;06
JAKE
And so we’re having folks step in and buy some physical feed at this point. I mean, virtually anywhere across the country, the cash price on feed is palatable enough to buy some amount. Most folks are stepping in and getting at least a quarter of what they need for the next crop year. But some folks have bought half or three quarters or 100% of what they need of certain commodities, really dependent on where you are in the world and what your local vendors are offering.
00;04;36;06 – 00;04;43;29
JAKE
But for the first time in a while, we’re stepping out pretty early and buying some very nicely priced feed ingredients for the next crop year.
00;04;44;05 – 00;04;58;05
KATHLEEN
Zach, I’m curious from your perspective, you’re working with dairy producers. Folks are looking at these lower feed costs and Q4 class reprice. Is it around 20 bucks class for around 21? Are they looking at these values and saying, hey, this makes sense from a margin perspective?
00;04;58;09 – 00;05;15;29
ZACH
Yeah, I think that they definitely are. And I think that’s definitely the narrative. We’ve been kind of driving in everybody’s head right now is whether they’re doing it or not. It feels like we’re in a very lull summer right now. But yeah, taking a look at where margins are at and, you know, you’ve got $4 corn, $20 milk, I don’t know if that’s ever last very long in history.
00;05;15;29 – 00;05;35;25
ZACH
Probably not. Right. So something is going to change there eventually. Right. And so we’ve been looking at a lot of getting your floors on class three in your class four out there via DPI. Buy calls on your feed side of things. You got availability for it go higher. You got feed can go lower. And so we’re really using a lot of optionality there to take advantage of this margin while allowing for, you know, a lot of people are very bullish right now.
00;05;35;25 – 00;05;54;25
ZACH
Basically on the supply side story, right. That milk is tight, cows are tight. It’s going to be very hard to grow. And we’re only going to continue to, you know, shrink the herd. Right. So people are very optimistic price going into the back half and into 2025 because of that narrative. But I don’t think that narrative is strong enough to not take advantage of the margin that is being offered to you right now.
00;05;54;28 – 00;06;01;16
KATHLEEN
Jake, back to you. What’s your expectation as we go into new crop end of 2024 and early 2025?
00;06;01;16 – 00;06;23;02
JAKE
We’ve been having folks take advantage of the market while it is down here, just because these are some of the better prices that we’ve seen in years now. But at the end of the day, we’re still not necessarily bullish on feed prices. We don’t expect them to go run dramatically higher any time soon, but these are just good opportunity to start stepping in and doing something.
00;06;23;02 – 00;06;48;02
JAKE
But at the end of the day, we still have very healthy balance sheets, both on the corn and the protein side of the equation. Their weather patterns have been moderately good. I think some folks have probably had a little too much moisture across parts of the Midwest, so that’s leaving some yield questions hanging over the marketplace. We have a good crop come in, and South America is expected to increase production yet again.
00;06;48;02 – 00;07;15;02
JAKE
They have some very lofty goals for their next crop cycle, which will go into the ground here at the end of 2024 and harvest and spring and summer, our time here in 2025. And if they achieve those, there’s not a lot of reason for prices to move much higher from where they are right now. But at the same time, when you look at a historical chart and what it would take to push a lot lower than we are right now, it just feels like we’re running out of room to the downside for the time being.
00;07;15;02 – 00;07;41;16
KATHLEEN
So, Zach, I want to go back on something you mentioned about we don’t generally see a ton of $20 milk when corn is trading sub four bucks. And I think you’re right that if we look back at history going from, say, 2001 to 2023, when corn was trading between 3 and $4, the average class three price was sub 16 bucks when we saw corn basically above six bucks, then that’s when historically we’ve kind of hit those $20 plus mark.
00;07;41;16 – 00;07;56;26
KATHLEEN
So I think there is a big question lingering out there of can we really sustain at these $20 plus futures prices on the class three side of things? And I think the same is true on class four. Two if corn remains depressed in this $4 or lower area.
00;07;57;03 – 00;08;12;14
ZACH
Yeah. And I tend to think also that driver of that milk corn correlation is probably the corn market. Right. So I’m thinking of it from a dairy producer side. And I like what Jake just said. We’re not super nervous about corn taking off. And that tends to make me believe we’re going to go see milk come off these highs.
00;08;12;14 – 00;08;41;12
ZACH
Right. With milk coming off the highs, I would say from a commercial standpoint you could argue that. And the reason for that would be especially on the cheese side, the cheese market over the last couple of months has largely converged with prices that were trading higher than the US market. So US cheese went from, say, $1.50 into the mid one 90s and we ran right up against where European prices are trading.
00;08;41;12 – 00;09;05;09
ZACH
Since that moment in time, new export deals are really coming into question. And so it doesn’t mean that we won’t continue to export. But the magnitude in which we were over the first several record setting months that we’ve seen so far in 2024 are now in question whether or not that rate can continue moving forward. So you could argue that, you know, that might lead to milk pricing coming on.
00;09;05;09 – 00;09;30;13
BRIAN
I know a debate that we’ve had in our office all the time. Those on the commercial side continue talking to our producer team saying, look at these margins. When is the milk coming? And you keep arguing with us? Zach, and your broader team saying, this time is a little different. And I know we don’t need to harp on the variables as to why it’s different, but doesn’t seem like it’s going to be an instant reaction given what you guys are seeing on the farm level.
00;09;30;19 – 00;09;50;16
BRIAN
Yeah, I think just high level from a livestock standpoint. It makes it hard to point at that margin and say that there’s going to be more milk coming because we just know that the heifers aren’t there, right? You can’t just magically make more cows. So I think that’s what does make this year so interesting and so different, but also nonetheless a margin you should be taking advantage of so much.
00;09;50;16 – 00;09;55;28
KATHLEEN
Back on the commercial side of things, what are some of the opportunities and risks that you’re seeing for your customers?
00;09;56;05 – 00;10;20;07
BRIAN
He’s looked at it through. I’ll focus on two commodities. The first, butter. Butter, has been really interesting recently because we keep hovering around the highs of the year and the spot market. I think the highs were established a couple months ago a little above 316. Today we’re trading around 313. We haven’t broken the new highs, but we keep hovering around the highest tier of pricing we’ve seen all year.
00;10;20;07 – 00;10;47;04
BRIAN
And when you look at the forward prices of butter, they’re not all that much different than the spot price. So when you add in the cost to carry physical butter, the forward curve actually becomes very negative. So on average costs opinion and a half or $0.02 per month to carry physical butter. You apply that to 313. You’re looking at a negative carry by close to $0.25 by the time we get to the month of December.
00;10;47;04 – 00;11;17;11
BRIAN
What that means is if you own butter, then you should be selling it today because there’s no incentive to be holding it and storing it for a higher price later on the year. So we’ve been working with the industry saying, you know what, we tend to peak seasonally later in the year. However, from an economic fundamental reason today the forward curve is saying you should be unwinding today, which goes against, I would say the more seasonal, historic, fundamental price movement.
00;11;17;11 – 00;11;20;11
BRIAN
And the butter market in general tends to see.
00;11;20;12 – 00;11;27;14
KATHLEEN
And we did see those 24 lots trade in Chicago earlier this week, which was the most since August 2023.
00;11;27;17 – 00;11;49;29
BRIAN
Yeah, we’ve seen I think the market absolutely is responding in that way where we’ve seen a big increase in spot activity. So it does appear at least some segments of the supply chain are saying, I’m going to de-risk by unloading some inventory here. What’s really interesting is that it’s met by buyers. So buyers are saying they’re realizing the forward curve is negative.
00;11;49;29 – 00;12;18;01
BRIAN
And they’re saying even with that incentive, which in theory should push them towards buying futures as opposed to spot they’re going out and owning spot anyway. So we would look at that and say they in theory should have an order for that immediately. If you’re going out to take on the spot market, otherwise, from a pure merchandizing or pure commercial hedging perspective, the forward curve after you account for carrying costs is an absolute, you know, much better price than today’s spot market.
00;12;18;01 – 00;12;47;08
BRIAN
The other aspect I want to touch on the cheese and just a follow in on the export comment. It’s been interesting in the cheese market from a spot relative to a fair price basis. The spot market continues to hover in this 190 area, give or take. The forward price of cheese is slightly higher than that. After you account for carrying costs to a certain degree, there is an incentive, a very, very small one, but there is an incentive to go out and buy a spot product and then sell the forward curve against it.
00;12;47;08 – 00;13;13;29
BRIAN
And so there is that. On the other side of that, though, from a manufacturers perspective, I would say their incentive is much more tricky today. And the reason for that, we touched on a little bit, just the export competitiveness or lack of clear price advantage coming out of the US market, I think is causing a lot of manufacturers to flex into alternative types of cheese that can be sold in the domestic marketplace.
00;13;14;02 – 00;13;35;04
BRIAN
Whereas previously, earlier in the year, it was pretty easy to say, make mozzarella cheese sell in the export market. Now, I would say there’s not a clear what to do scenario from a manufacturing perspective. So I don’t have the exact numbers in front of us, but we have seen an uptick in spot sales on the spot cheese side as well.
00;13;35;04 – 00;13;48;03
BRIAN
And I would imagine that is largely being driven by, you know, the manufacturers saying we need to flex into other products that we can just clear into the domestic market until we have a better clear advantage to be exporting again.
00;13;48;06 – 00;14;09;15
KATHLEEN
And because I do have the numbers in front of me, I’ll add that in the first 17 days of the month of July, we’ve traded 32 blocks and 60 barrels. That compares in June to over that same time period, right on pace with June on the black side. And we’re about double the barrel volume.
00;14;09;15 – 00;14;32;24
BRIAN
Interesting. Yeah there’s that there’s an export side. And another aspect that’s kind of more of a domestic related function. But we have heard some hard Italian cheesemakers that would prefer to make hard Italian cheese and sell it domestically have extended cheddar production to sell domestically because the hard Italian community has pushed back on even domestic prices being high.
00;14;32;24 – 00;14;54;13
BRIAN
I think the wild card in here from the cheese perspective, though the insights team shared it earlier this week internally, but from a retail promotional price of cheese in the beginning of July hit the lowest price in over three years. And we’re not talking about the lowest price in July. We’re talking about the lowest price in three years at the retail side.
00;14;54;13 – 00;15;06;08
BRIAN
So a lot of mixed signals out here right now. But I would say from a domestic perspective, that could actually help fuel some domestic demand. After seeing the lowest prices in years at the retail shelf.
00;15;06;08 – 00;15;26;08
KATHLEEN
Yeah, I think the adding to that, we’ve learned pretty quickly here in the last couple of months that value is going to help move product, whether it’s on the retail side or the foodservice front where there’s a deal. People have been attacking those deals. So to your point, could make for an interesting second half of the year in terms of just domestic sales on the cheese side.
00;15;26;11 – 00;15;52;18
BRIAN
Absolutely. Another wild card would be that foodservice side where there’s been such an uptick in foodservice promotional activity. The big question that’s being asked, though, does that matter much for dairy? It might be good for general foodservice sales, but a lot of the products that are being highlighted aren’t necessarily adding more dairy consumption. Or at least it doesn’t appear that that still being debated whether or not it is.
00;15;52;23 – 00;16;10;29
KATHLEEN
Yeah, you just kind of hope from a dairy industry perspective, if they’re heading in for a chicken sandwich deal, that they’re going to grab a cheeseburger while they’re at it. Well, thanks, team. Thanks to Zach, Brian and Jake for joining me on today’s episode and sharing your insights with our listener. Thanks, as always to our media team for mixing and mastering.
00;16;10;29 – 00;16;22;25
KATHLEEN
And thank you to you, the listeners, for joining us today. If you like what you hear, subscribe on your favorite app. And as always, if you’d like to learn more about how we help people manage risk, contact us at Insights at ever Dot egg.
Disclaimer: TRADING FUTURES AND OPTIONS ON FUTURES INVOLVES SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE. THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THE INFORMATION AND COMMENTS CONTAINED HEREIN ARE PROVIDED BY EVER.AG AS GENERAL COMMENTARY OF MARKET CONDITIONS. THIS INFORMATION SHOULD NOT BE INTERPRETED AS TRADING ADVICE OR RECOMMENDATION WITHOUT FURTHER DISCUSSION WITH YOUR EVER.AG ADVISOR. THIS IS A MATTER OF SOLICITATION.
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