In the latest edition of the Parlor to Plate dairy podcast from Ever.Ag Insights, our all-star panel looks at supply-side factors. How is global milk production faring? Could US dairy prices and inventories open export opportunities? 

Join host Erica Maedke and panelists Jon Spainhour and Colin Kadis for a spirited discussion.

Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].

(Transcript auto-generated)

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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;18 – 00;00;29;06

Hello. Welcome to Parler to play a weekly podcast from ever sites dedicated to offering listeners enlightening discussion and actionable intelligence about dairy markets. I’m your host, Eric Mankey. We are excited to have you along today. And if you like what you hear, please like, subscribe and tell a friend or two. Today it is Wednesday, September 25th, around 1:00 central time.

00;00;29;08 – 00;00;52;05

A quick rundown of the markets CME block cheddar. We are at 218, down $0.07 for the second week in a row. Barrels 243 down $0.20 on the weak spot. Butter. We are under the $3 handle at 286. We are $0.15 down. Nonfat dry milk is at $1.38 per pound, down a penny on the week in the grain complex.

00;00;52;05 – 00;01;18;25

December. Corn at 412 per bushel. That’s down a penny. November. Soybeans at 1042, up $0.28 per bushel from last week. And December soybean meal up six bucks to three, 24 per ton. It’s a new week. And another all star panel from the financial services team today. I’ve got John Spane Howard. He helps cooperative processors and end users manage their price risk, as well as Colin Cates, who helps dairy producers manage their risk.

00;01;18;27 – 00;01;38;05

Gentlemen, markets are moving quickly. We are approaching the fall harvest. The peak holiday demand season. Certainly, we’re all watching what the markets are doing right now. And I will say one of the big questions people have been asking me about generally is milk production. And that supply. So, Colin, I think you’ve got some thoughts on that to share with our listeners.

00;01;38;07 – 00;01;53;12

Yeah. Erica, you know, we were talking before the call, but the story of milk production is really three stories. You know, New Zealand has been surprising. Maybe, you know, this is the time of year when they really start to ramp up again. They’re a pasture based system, so it’s not unusual for them to see a lot of milk says now.

00;01;53;12 – 00;02;12;19

But even the milk as compared to last year are pretty insane. I think they’re actually up 9% just on volume alone year over year, which is wild, by all means. Kind of shifting to Europe. It’s really the opposite story. You know, Europe has struggled with a disease called bluetongue. I think in our camp we’ve heard that bluetongue is usually worse fell on dairy herds in the summer.

00;02;12;19 – 00;02;28;22

So it’s possible that, you know, the impacts of bluetongue might alleviate a little bit as we get into the winter. But even as we look at the data here and the recent, you know, data unfortunately is July, but in July they were down 1% year to date. So you kind of add New Zealand, lots of milk, Europe, not nearly enough milk.

00;02;28;22 – 00;02;47;01

And then when we come home, you know back to the US. I think the story for a long time has been, hey, less milk, less milk, less milk. We were still down minus 0.1 percent. You know, that was against expectations of minus 0.4 to minus 0.5. So I think it is worth pointing out, you know, we had some big states like Texas that was up more than 7%.

00;02;47;01 – 00;03;09;02

Idaho had some bird flu issues and went from -1% last month to actually almost back to parity. And even California, which was up 2%. You know, generally when we see something like bird flu, we say on a statewide level we’re usually down 2%. Well, California is 18% of national milk, down 2% on 18% is about minus 0.36 or minus point 4%.

00;03;09;02 – 00;03;29;03

So still not enough to counteract what we’ve seen from Texas and Idaho that continues for future months. John, you know, on the producer side, I think there is this fear that we’re going to be making more milk here. Of course, the only reason it matters is if the milk turns into cheese or other products. What are you seeing on your side in terms of cheese and maybe even export opportunities?

00;03;29;10 – 00;04;01;04

Well, I think we have to look at it from each different region and possibly each different product. What we do know is that in Europe right now, cheese is as high as 242 to 50 out there on a spot basis, particularly in the Gouda and Mott’s range. That does start to open up some cheese export opportunities. Probably won’t do it on a spot basis though, because our barrels, even though they were down almost $0.12 today, still 243 and our blocks at just shy of 218.

00;04;01;04 – 00;04;25;25

So you put that together and could that open up an export opportunity? Sure. But we’ll probably do it more on the futures side of things. Our futures in November 2nd 22. These 210 I don’t know that we’re going to see those export opportunities really open up here in the fourth quarter. As much as maybe if that international cheese price stays as high as it is in Europe that we can see some stuff go out against Q1.

00;04;25;25 – 00;04;53;19

The Q1 average right now is right around 193 on our cheese side, and I think the European price is still well above that. So that could open up some opportunities there. However, I would point out that contacts that we’re familiar with will say, yeah, that’s if you’re competing with Europe, but you’re not just competing with Europe, you’re competing with New Zealand, New Zealand prices for export right now, if we want to compete with them, we need to be in that 175 to 185 area.

00;04;53;20 – 00;05;12;14

As you mentioned earlier, there’s a lot of milk in New Zealand. We’re still all kind of looking in and saying is China back? Is China not back? Even if China’s here, there still seems to be a pretty big hole of demand in the marketplace. And New Zealand has a lot of sellers. They’ve got to move right now. That’s going to put them aggressively competing with the US.

00;05;12;14 – 00;05;34;11

And again, people are saying, hey, if you want to move cheese internationally versus New Zealand anyways, gets that 175 to 185 area. When we go into the butter side of things, this is where it gets a little bit more interesting. Butter in EU has been around for hours now for most of the last two months. I think a lot of people look at that and say they’re at $4, we’re at 320 or we had been at 320.

00;05;34;11 – 00;05;56;15

How on earth are we not exporting? And I think what we have to remember specifically, not just about Europe, but about the international market. The international market likes 82% fat, unsalted butter by standard here in the US, we make 80% fat salted butter. We will make it 82%. But we need a long standing commitment from the buyers to buy that line.

00;05;56;15 – 00;06;13;00

Time and people here aren’t going to make it on spec, and they’re not going to make it on maybe one month or two month. They want a three, six month, even a one year commitment to take that butter. And again, I want to make sure that everybody understands. It’s not like people are saying, we’re going to take butter out of the US and put it into France.

00;06;13;00 – 00;06;36;13

I’m not saying it can’t happen, but it’d be really hard to make that happen. What you’re really trying to do is get into the regions that Europe might normally export into, and that is going to be the Middle East. That’s a big region there that we can compete on. And I would just say that right now, the forward curve on that first half butter in Europe right now is still up in that 375 to 380 area.

00;06;36;13 – 00;07;05;15

Our forward curve and here is just shy of 285 right now. So what’s going to buy those exports. It’s that forward curve discounted to the rest of the world. That’s exactly where we’re at right now. I think it opens up the door for exports in 2025. Again, I’m not saying it can’t happen in 2024, but it’s just hard to make that happen, especially considering that I’m guessing most of the butter that has been made in the US so far this year has been that 80% fat salted spec that’s out there.

00;07;05;21 – 00;07;22;05

John, as we think about New Zealand and if they have a great season, a lot of milk solids coming at them. I mean, their dryers in many cases are set up to really push the peak season through whole milk powder. So from a product mix perspective, I do think that could have an impact.

00;07;22;05 – 00;07;41;01

Right now you’re right, Erica. They’re going to have to run whole milk powder. Right. That’s what they’re set up to do. It’s fast. They can get it out the door. But once they start to slow down and come out of that peak, then they can start getting pretty picky and choosy about what product mix they go to. You have to imagine they’re going to be looking for those higher value products right now.

00;07;41;01 – 00;08;13;01

Believe it or not, those higher value products are butter and skim versus whole milk powder, right? That spread is pretty big, and they’re probably going to go try to attack those higher values. So if you’re a New Zealand dairy producer right now, you have to be pretty darn happy. You’re pushing through some pretty big milk numbers and some pretty big milk solids numbers, and you’re getting some pretty relatively high prices versus what we’ve seen here in the last few years, I guess, John, just thinking about New Zealand dairy producers, I know on the American side, I mean, these are some of the best margins we’ve really ever seen.

00;08;13;01 – 00;08;32;04

And even as we look at 2025, where prices might be 3 or $4 lower, they still look great. You know, I was just looking at a chart today of EU mozzarella Jan June versus CME futures. We’ve seen the strength in the barrel. Any thoughts there I mean can the dairy producer rely on maybe some of this mozzarella either through export or pizza demand.

00;08;32;04 – 00;08;56;13

Do you have any news there. Well I don’t know how much I can say they can rely on it. But I would say that, you know, the barrel price being as high as it is right now is the after effects of several different functions, one of which is we had pretty decent mozzarella exports, right. So the more mozzarella exports we have, typically the less barrel production we have, the less barrel production we have.

00;08;56;13 – 00;09;22;23

Prices typically go up. You lose those mozzarella exports or even your domestic mozzarella. You generally make barrels. And the price of barrels comes down right now. Again it’s not the only contributing factor, but it is a big factor that we had very good mozzarella exports for the better part of the year. And even now I think people would say mozzarella exports are better than they expected, considering where our futures were at the time that maybe some of these orders got booked.

00;09;22;26 – 00;09;34;11

I guess we’re probably going to get some clarity on that tomorrow with the cold storage report, right. We’ve got two experts, John and Erica. You know what would be surprising to you guys to see tomorrow from the report? What are we kind of expecting.

00;09;34;12 – 00;10;00;17

So the official average insights numbers. So for August we’re expecting butter to come in at 315 million pounds. That would be down 39 million from July. Normally we’re down about 27. So we are expecting a much larger drawdown on butter stocks. And then in the cheese realm, we would expect 1.38 billion pounds, down about 23 million pounds. Usually we’re down about 14.

00;10;00;17 – 00;10;22;15

So again another big drawdown in cheese. And I would say the market movement, especially in cheese to me supports that. We just don’t have as much in inventory. You know, we’ve had very high prices. That’s usually a sign of tightness now, maybe a tightness in the 4 to 30 day old realm rather than just inventory in general. That to me, if we don’t have big drawdowns, that might be the bigger surprise.

00;10;22;15 – 00;10;22;27

John.

00;10;23;05 – 00;10;45;29

I think that’s exactly it. Erica. I mean, I think we can look at the price action in barrels and say that suggests that there’s probably was an issue with production and or cold storage. Right. So I think the big surprise when it comes to cheese would be is if there isn’t a larger than usual drawdown in that number, but if it does come in and we do see that number, I don’t think anybody can look at that and say why?

00;10;45;29 – 00;11;06;00

That really shocked me. Based on what we’ve seen here. Maybe there was a little bit of a timing issue. Again, these barrels didn’t really start running in earnest until the 6th of September. Right? So this cold storage is going to be an August cold storage number. So maybe it’s not reflecting in there. But my guess is, is that it’s at least reflected in there in some way.

00;11;06;00 – 00;11;09;24

So that’s what I would be looking for is a larger than usual drive.

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The question from.

00;11;11;06 – 00;11;15;13

Erica, why did the entomologist throw the butter out the window to see a butterfly?

00;11;15;13 – 00;11;38;05

Colin special talent telling great jokes. A big thank you to Colin and John for joining me on today’s episode and sharing your insights with our listeners. Thank you, as always to our media team for mixing and mastering. Thank you to the listeners for joining us today. If you like what you hear, subscribe on your favorite app. And if you’d like to learn more about how we help people manage risk, contact us at insights at ever.ag.

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