The Ever.Ag Podcast by Ever.Ag

October 17, 2024 Parlor to Plate – October 16, 2024

In the latest edition of the Parlor to Plate dairy podcast from Ever.Ag Insights, our all-star panel focuses on the short term. Are cheese and butter markets finding buyers again? Are healthy margins encouraging on-farm growth? And how is harvest shaping up? Our panelists discuss these topics and much more.

Join host Erica Maedke and panelists Jon Spainhour, Kathleen Wolfley and Jake Kingsley for a spirited discussion.

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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;08;15

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;28

Hello. Welcome to Parlor to Play a weekly podcast from Ever.ag Insights, dedicated to offering listeners enlightening discussion and actionable intelligence about daring markets. I’m your host, Erica Maekde. We are excited to have you along today. If you like what you hear. Please like, subscribe and tell a friend or two to timestamp today’s recording. It is Wednesday, October 16th.

00;00;29;29 – 00;00;52;17

It’s a little bit after noon central time and a quick rundown of the markets. CME Black Cheddar $1.94. We are up just a penny from last week. Barrels at 193 of a nickel spot. Butters at 264 $0.02 below last week’s Wednesday. Nonfat dry milk closed at $1.35, unchanged on the week in the grain complex. A bit of a red board.

00;00;52;18 – 00;01;35;17

December corn at 401 per bushel. We are down $0.20 on the week. November soybeans at 991. We are under the $10 line, and it’s down $0.29 from the last week. And then soybean meal at 312 per ton, down $11. It is a new week. Another all star panel from the financial services team from the Sunflower State. We have Ever-rise, director of feed procurement and the star of critically acclaimed Grain Feeds video series, Mr. Jake Kingsley, helping commercial clients manage risk and out of our Chicago office, Mr. John Spain Howard and Living the Dream in upstate New York with the kids and the dogs and family well, helping dairy producers manage risk during her day job.

00;01;35;17 – 00;02;02;15

Miss Catherine, you lovely. How are we today, team? Couldn’t be better. Erica. Thanks for having us on. The markets have definitely been moving pretty dramatically over the last couple of weeks, and clearly demonstrating some of the value of managing risk in an agricultural market. Definitely a lot of volatility. I’ve been getting a lot of questions. So I want to pass those questions onto the panel today and talk about really what’s going on in the here and now and why the big moves.

00;02;02;22 – 00;02;18;10

So Jake, let’s start with you. I mean, we’re in the middle of harvest here in the Northern hemisphere, particularly here in the main crop producing states. And the U.S. heard a little bit of chatter about South America and their planting. So what are you seeing that’s really been moving the grain markets?

00;02;18;12 – 00;02;49;08

Well, I think we saw a couple of weeks ago a pretty healthy rally in futures, both in corn and soybeans and other feed related commodities, primarily surrounding some concern with dry weather in South America as they were preparing to go into their planting window and fund money, also trimming up their short positions and in fact, getting long or longer in a couple of commodities, kind of a seasonal move that they make.

00;02;49;08 – 00;03;12;11

They’re going into harvest here in the US. Then we kind of peaked out and over the last week or two here now, South America started to catch some fairly timely rains. Their crop is getting off to a better start than it looked like it would have been there with the drought. Harvest is well underway in the Midwest. As you said, soybean harvest probably will clear the three quarter mark nationally.

00;03;12;11 – 00;03;38;14

When new data comes out next Monday, corn almost certainly will clear the halfway point. Yields are looking as good as expected across virtually all of the growing region, and one’s got near even or a little bit long in a lot of commodities. It’s likely that with things coming together as they have, funds may be shortening back up, driving this thing back down towards some of the lows we had in the futures.

00;03;38;16 – 00;03;51;09

Certainly here across Wisconsin, there’s been a lot of combines rolling, a lot of beans coming off the fields. Have you seen much change in the basis as a lot of grain appears to be coming in at a very narrow window of time.

00;03;51;09 – 00;04;18;01

You know, basis across the Midwest had been pretty weak relative to normal harvest values. It had been at or below normal harvest values for a handful of weeks leading up to harvest. I think those values have been fairly steady as harvest kicks on. I would not be surprised to see a break lower as bean space starts to fill up and we get towards the back end of harvest, where bushels just have to find somewhere new to go.

00;04;18;02 – 00;04;44;23

Our rail dependent destination markets were more steady earlier on in this window, and in the late summer and heading into harvest, we had firmer values in a lot of those areas and not much of a break. We’re now starting to see that break down a nickel ten $0.15 lower per bushel on corn basis in a lot of those markets that had been kind of steady and unchanged.

00;04;44;29 – 00;05;01;02

Protein in a lot of those areas, soybean meal had been relatively attractive. It remained steady, but canola and and some of those other proteins are starting to soften up as Canada works out some of their logistics. And we have a big bean crop coming into expanded crush capacity.

00;05;01;09 – 00;05;20;07

Thanks for that update, Jake. Let’s turn it into the dairy markets. John. Interesting to watch nonfat, probably one of the less volatile commodities and certainly running at a premium to the rest of the world. A bit of an unusual position for the U.S. to be the price leader. What are you seeing that’s keeping nonfat in this kind of limbo space?

00;05;20;07 – 00;05;23;19

Certainly there’s things happening in California, things happening in Europe.

00;05;23;26 – 00;05;47;21

You just said it all, Erica. You summed up my piece for me here. And all seriousness, when it comes to nonfat, you are correct. We are the highest price in the world today. We settle the CME spot market at 135. Even yesterday’s GDP settled also 125. That was lower. The European complex has been moving lower to 125. And we are starting to see more sell side show up here on the CME spot.

00;05;47;21 – 00;06;09;21

We are off our highs. If you go back just to the beginning of September, we were up at that 140 area. So we have drifted off our highs but still maintaining a premium. Futures still at a fairly high level, I’d say almost flat across the curve. Right. If we just really look at it, we’re kind of, you know, the curve doesn’t present much indication to a certain degree on, you know, what the market’s thinking.

00;06;09;21 – 00;06;30;25

There is a little bit of a premium as you go far out in the second half up to that 139 a half area. But on average we’d say that curve is still down here. And that 135 to 136, which is right where spot is. You ask what’s keeping it up here? I’d say there’s two things. First of all, we’ve seen very, very respectable exports to Mexico for most of the year.

00;06;30;25 – 00;06;54;14

And it’s slowed down a little bit on the last export report, but it’s still a big number. When we look at the total on the year, that is important. Another one is another important factor, I think, is we just haven’t produced a whole lot of skim and not that. So we haven’t produced a lot. We’ve seen a lot of production kind of shifting over into class three and certain regions, but just our total production number is down.

00;06;54;14 – 00;07;18;08

And at the same point in time, our inventories are down and we’ve had relatively decent business out of Mexico. I think our domestic demand number probably leaves a little bit to be desired. But nevertheless, you know, it feels like we’re in good shape in that regard. Mexico is an export destination, but I think it’s important to remember we’re kind of a featured supplier to them, even if our price sometimes is a little bit higher than the rest of the world.

00;07;18;08 – 00;07;34;28

We are in a geographic location. That makes it very easy for us to transfer those goods right across the border. Will be interesting to see how we act as we move a little bit further down the line, one gets the sense that maybe some of these exports were booked at a time when the peso was significantly stronger than it is today.

00;07;34;28 – 00;07;54;17

So as we move out of some of these contracts, maybe we get into fresh sales. The pesos were significantly less today. So bringing that buying power down. And then finally I would just add it up to say or finish it up by saying, right here, right now we are dealing with bird flu in California. I think that still leaves a lot of questions on the table.

00;07;54;17 – 00;08;12;23

We know it’s affecting milk production. We know it’s probably going to continue to affect milk production. If it’s going to affect milk production in California, the story kind of goes, isn’t that likely going to affect nonfat production, and shouldn’t that have an upwards upwards pressure on price? That’s very possible. I think in the short term we can probably see that.

00;08;12;23 – 00;08;31;27

And maybe that’s what’s creating this, support here and now. I just I think what we’ve seen throughout the country is that bird flu tends to be a temporary issue, not a structural issue. So any effect that it might have on California and the corresponding effect that it could have on nonfat prices should be fleeting and not structural.

00;08;31;27 – 00;08;42;21

So with the rest of the world moving lower, it’s going to be not only hard for the US to maintain that premium, but even if it maintained a premium, one gets the sense that the flat price might move lower.

00;08;42;23 – 00;08;50;22

So we’ve seen a lot of chatter about stimulus in China. Do you think that that moves the needle at all on powder demand into the region?

00;08;50;25 – 00;09;14;23

It could you know, that’s been a really big topic, right? We saw the stimulus from the Chinese government come out. Stock markets exploded. At least the Chinese stock market did. And since then a lot of it stayed it off. It just kind of faded out of there. When we look at the GDP and the volumes on there, we can see that China and they have been active in the scheme, a powder area, the biggest product, though, that New Zealand might feature into China would be whole milk powder.

00;09;14;24 – 00;09;30;16

And I think that has been active. But as our team at Fresh Agenda has been really good at pointing out that if we just look at the GDP volumes and use that as a proxy for Chinese demand, it might be a little bit misleading. Yes, the Chinese have bought more. We can see it on the data on the GDP.

00;09;30;16 – 00;09;49;27

But if we look in totality at the amount of product actually coming into China, at least so far, it hasn’t really increased. They’ve taken volume from Europe and shifted it into New Zealand. That makes sense that at a time you saw decent transportation freight costs, but also European prices got to a point where they were higher than New Zealand.

00;09;49;27 – 00;10;12;03

So it made sense to switch some business back over. I think the Fresh Agenda team would suggest that maybe Chinese demand in totality hasn’t really moved that much. Now the data that we have all comes from before that stimulus was announced or created. So maybe this does have some influence, but I think so far we’re not looking for it to do much for us.

00;10;12;05 – 00;10;35;10

So shifting back domestically, John, let me ask you, when I look at the balance sheet for nonfat production is definitely been down so far this year. But yet our stock acts are very close to last year’s levels, even with these great imports. So the numbers say the implied demand, because that’s what we have to back into is that demand number must be off pretty dramatically.

00;10;35;10 – 00;10;54;04

And I had a question asked yesterday, doesn’t this make sense for a cheese maker when you’ve got prices up in the dollar $92 type of range, shouldn’t we be using some of this powder to make cheese? So I’m curious if you’ve heard anything on the demand side, particularly from an industrial users perspective, which way they want to go with?

00;10;54;05 – 00;11;14;09

You know, maybe they were using liquid concentrate, right. And so it never made it into the production. So it went right into the cheese, never made it into the nonfat production numbers. So we don’t see that. I get the sense though that as we said supply is down, productions down exports are pretty good. But yet domestic demand still not anything stellar.

00;11;14;09 – 00;11;26;16

I think that can kind of be said for powder across the world, right. We’re making a lot less in Europe. We’re making a lot less here. And yet stocks don’t really move that much. It kind of suggests that demand in general isn’t all that awesome. Well, and.

00;11;26;16 – 00;11;42;25

That makes sense, John, especially when you think of the spread we’ve had between class three and class four. If you’re a cheese maker, you know you’d want to buy in a class three basis and bring that liquid milk in. Not necessarily a good return for the dairy producer. I mean, certainly they want more of a class four type of price.

00;11;42;25 – 00;11;59;29

That spread relationship has gone back and forth all year for most of the year we saw class four significantly higher than class three. And then we saw here when barrels were up at 260, it put class three significantly higher than class four there, at least for a while. So that could have seen a little bit of transfer of those solids.

00;11;59;29 – 00;12;06;02

But my guess is, is that in general, demand for nonfat solids outside of Mexico just kind of so-so.

00;12;06;06 – 00;12;27;16

So as we were getting ready to talk here, nobody really wanted to take the butter question. It’s certainly been a very volatile market. We are Wednesday so far this week, and we are two loads off of a record high. So we’ve had amazing volume coming into Chicago and we’re feeling like maybe even coming off a bottom here. Coming up today in the butter market.

00;12;27;16 – 00;12;28;17

John, Kathleen.

00;12;28;17 – 00;12;31;18

Kathleen, I’ll be happy to share the stage with you on this.

00;12;31;18 – 00;12;52;03

One. I was going to say, Erica, you didn’t have 127 lots by Wednesday on your bingo board. I think what we calculate that was like the third highest weekly volume, and I think the second biggest in the five day trading week. I think that’s where the math landed for a Wednesday, October 16th. I don’t know, it just kind of seems like in the butter market that there’s butter out there.

00;12;52;03 – 00;13;27;20

We’ve got plenty of the cold stores. Report continues to tell us that there’s plenty out there. And okay, it’s the middle of October in the butter market as we think about the holidays. Isn’t it all about having the right product in the right hands at the right time? And as we sit here in mid-October, it seems like for now, people are in an okay position around order flow, product placement, etc. I suspect that there’s opportunity going into the Christmas season, probably not as much around Thanksgiving that we could get a little bit more promotional activity around retail, in particular for butter, but the ship is probably sell a bit for Thanksgiving at this point.

00;13;27;20 – 00;13;44;13

So to your point, Erica, you know, are we starting to find a little bit of a bottom? I think perhaps the cream market to me is going to be one of the big indicators there of do we start to see that cream multiple start to firm up a little bit. There’s also a question to in my mind, around 82% unsalted as well.

00;13;44;13 – 00;13;57;29

We are a bit more competitive into the international market with the fat that’s available in the marketplace. Do we start to see manufacturers focus a little bit more on export opportunities than domestic product production? At this point? I don’t know. John. Thoughts?

00;13;57;29 – 00;14;17;10

Well, let me first say there is nothing more incredible than seeing the volume trade right in front of us like we are right now on the CME. My hat’s off to both buyers, sellers and even speculators that have sat on the sidelines and wished for more volume to come to the CME. This is just an awesome development. It just really builds to the validity of this price.

00;14;17;10 – 00;14;31;27

And it says, hey, this price is real. It’s right here in front of if you want to buy it, it’s for sale. And if you want to sell it, there’s a bit there for you. I think there’s never been a time when I’ve looked in and felt like that CME price was a more true representation of where spot butter is out in the country.

00;14;31;27 – 00;14;51;01

So again, hats off when it comes to why is there so much product. You’re probably right. We’ve made a lot of butter this year right. And we’ve gotten to a point where our inventories are in pretty decent shape going into the most important part of the year. There’s probably a little extra butter or a lot of extra butter right now to be parceled out and gotten rid of.

00;14;51;01 – 00;15;09;13

I would say on the buy side, where are all these bids coming from? Then we have a little bit of a premium in the futures, right? Not a huge one. Not the biggest we’ve ever seen, but enough that it should incentivize the cash and carry people. People that can buy, spot and sell futures on an arbitrage and carry that into the next few months.

00;15;09;13 – 00;15;26;26

There is a carry on opportunity now all the way out through November of 2025 and some months. It’s bigger than others. But you can imagine a world where somebody that’s been paying 320 for most of this past year sees that we’re down here at 260 for this area and says, you know what? I can take on some inventory and carry that.

00;15;26;26 – 00;15;52;04

And the arbitrage might be there. Or to an end user, it’s actually cheaper than buying futures right now. So I expect to see more buyers here. And for that to continue, I think there is room for a little bounce here. I don’t know how much we’ll get. I do want to throw that out there. We talked about bird flu earlier and the effect that it might have on California milk production, if it’s going to have an effect on milk production and thus a nonfat, there’s a good chance that I can cut into the butter production as well.

00;15;52;04 – 00;16;10;05

So far, this is signaling to us not much of an effect on milk production in our border centric area. And then finally, I would just say all year long, one of the concerns about water has been the cheese plants are going to rob milk from the class four plants at the balancing level. And here we are walking into the middle of October.

00;16;10;05 – 00;16;26;18

We haven’t necessarily seen that that happened in the past, but we have a pretty decent sized cheese plant here, you know, theoretically could be starting to open. And the more that that ramps up, the more milk that could be potentially pulled out of the class force base. That’s putting a little bit more support into butter. So I don’t know.

00;16;26;18 – 00;16;36;13

I do look at it to say there’s room for a little bit of a bounce here. Yet at the same point in time, I don’t think anybody should count on the idea of us getting much higher than $3 right now.

00;16;36;15 – 00;16;53;11

I was just going to lean into it. So, Erica, we haven’t really talked about the cheese market directly here. I would note that it still seems like supply is a concern as it relates to the cheese market. We have seen a little bit of bounce back here this week in the spot. Markets still trading in the middle 90s for both blocks and barrels.

00;16;53;11 – 00;17;12;16

I think, as John noted, burb blue in California is certainly a concern. The fact that we’re getting closer and closer to the holiday season is also creating some supply concern as well. But I think for right now, on the demand side of the equation, there’s nothing on the demand side that’s waving its arm, saying, hey, demand it. In the domestic market in particular is super hot.

00;17;12;16 – 00;17;30;06

I was just looking at some data around McDonald’s and Wendy’s visits for third quarter, even though they were driving some pretty aggressive value promotions. The sales data doesn’t look that great, or the traffic data doesn’t look that great. So I think to me, the cheese market is in this position of looking for clear direction as we go into the holidays.

00;17;30;06 – 00;17;45;21

And I think that makes sense when you look at the chart, because we’re back in the 90s, which is where we spent most of the summer. Yeah, exactly. I mean, I think we’re in this position where we’re weighing the supply side, which is, you know, arguably tight or concern about being tight and the demand side, which is just not all that stellar.

00;17;45;21 – 00;17;56;12

I think exports are maybe a separate conversation, a more 2025 focus. But right now I think that we’re kind of in this choppy, sideways ish position around cheese would be my suspicion.

00;17;56;14 – 00;18;02;09

I don’t know about those value meals, but the Krabby Patty certainly drove my family into Wendy’s this weekend.

00;18;02;11 – 00;18;23;23

John, I’ll share this place. Sure I did daily visits to Wendy’s since launch of Krabby Patty collab compared to daily visit average of respective days of week year to date. Tuesday, October 8th up 26.4. Wednesday, October 9th up 20.7. Thursday, October 10th, up 23.9. The big question now is does the allure start to fade as we get into this week?

00;18;23;25 – 00;18;44;01

A big thank you to Jake, John and Kathleen 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. And thank you to the listeners for joining us today. If you like what you hear, please subscribe on your favorite app and if you’d like to learn more about how we help people manage risk, please contact us at insights at ever.ag.

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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