Transcript 

Hello, everybody. Welcome back to another GDT Tuesday. I’m your host, Cody Koster. With me from Chicagoland, Mr. John Spainhour. John, how are you today?

Doing great, Cody, and excited to be here.

We are excited to have you here. We are at the first GDT after ADPI week in Chicago last week. Global Dairy Trade today up 1.5% as an aggregate. Going through a little bit of a rundown real quick, and then John’s gonna kind of jump in commodity by commodity, but skim milk powder was up 2.9%, whole milk up 2%, cheddar cheese down 3.9%, and mozzarella up 4.2%, with butter rounding us off down 3.1%.

John, should we start on the cheeses this week?

Yeah, sure. You bet. As you pointed out on the cheddar side, cheddar price is down 3.6%. If we were to look at that and say, “Is that important?” the answer is yes. New Zealand cheddar has been higher than the rest of the world for quite some time now. So just if we’re comparing cheddars, right?

The U.S. at $1.63, and New Zealand was higher than $2.10, and now coming down to the $2.09–$2.10 area, it makes sense. However, as we’ve stated on here many times, I think it’s really important to note that in the international cheese trade, we’re not really comparing New Zealand cheddar with U.S. cheddar.

It’s more that we’re comparing mozzarella prices with the U.S. cheddar price. And the mozzarella price today was up 4.2%, coming in at $1.82. Again, the cheddar price is a New Zealand cheddar price. The mozzarella price tends to be the European mozzarella price. So coming up 4.2% today to $1.82 on mozz, it kind of opens the door, if you will, for U.S. exports.

We tend to say that the U.S. cheese market needs to be between 25 and 30 cents lower than the mozzarella price to capture exports. Right now, we’re about 19 cents cheaper, and with the mozzarella price moving up, maybe it continues to open that door. But I think in order to get large-scale exports, we’ll need to see that window get a little bit bigger.

However, again, mozzarella prices today going up to $1.82, and that corresponds with and confirms some of the prices that we had heard coming out of Europe late last week. A lot of volatility over there on their cheese price. It had moved lower at the beginning of last week and then suddenly, at the end of last week, started moving higher in their spot and futures market, and then finally seeing it move higher on the GDT today.

Now if we roll over into a little bit of the powders today, skim milk powder, like I mentioned, up 2.9%, whole milk up 2.0% today. Still lagging behind our price on powders. Is there any kind of correlation, any kind of difference that you’ve seen auction to auction for the powder side, John?

I don’t have my geographic breakdown that I normally have for this call today. But I would guess that when we do get it, what we will see is that Latin America was still pretty busy on the GDT today, specifically for SMP. Latin America on the GDT encompasses Mexico. I think Mexico is still a big buyer of European and New Zealand powder.

If we look at New Zealand powder on today’s auction, $1.64. EU powder came up to $1.57. For those that can buy from those regions, that represents a substantial discount to the U.S. nonfat price, which today is at $2.28¼. Mexico, in order to do that, would need to have transportation out of Europe or New Zealand. They need to get it into a Mexican port, and most importantly, they would have to have import licenses, which are available and are being used. And all in, that will probably end up being cheaper than where the U.S. price is right now.

So I think we continue to see buyers come to the other regions as opposed to buying out of the U.S. And that also, I think, means Southeast Asia. Southeast Asia doesn’t have these import quotas or tariffs, so they’re probably going to buy out of New Zealand at $1.64 or Europe at $1.57 before they buy out of the U.S. at $2.28.

As we move to whole milk powder, it was up 2%. That one kind of keeps trucking along here. And in the grand scheme of things, whole milk powder had been down here for about the last three auctions and caught a little bit of wind here. Again, up 2%, but I think the most important thing I would take away from that is that if we take the butter and skim milk powder price and put them together and create a synthetic whole milk powder price, whole milk powder is still significantly cheaper than the combination of butter and powder.

So I think whole milk powder represents value as compared to this butter-powder price, and I think buyers are finally recognizing that in here and were willing to be more active on today’s auction in order to capture that value.

I’m not saying there’s a shift of winds here, but the past two auctions that you and I have been on, we’ve been lower, and then this one was the first one that we’ve been higher. We’ve seen these trends in GDT where you get three highers, three lowers, so on and so forth. And I know we don’t have our purchases by region today, but anything else massively that stuck out to you on this GDT Tuesday?

I would just point out that we are in what I would refer to as the trough of supply offers, right? The New Zealand production season goes through peaks and troughs, and at the peaks, they have a lot to sell, of course, for the corresponding months.

And for the months that they’re not going to have a lot of production—we’re in the trough. There’s very little for sale. And typically, the Chinese, who are the biggest buyers on the GDT, have been good about saying, “I’m going to be a buyer when the volumes are at their highest on offer, so I’ll have the least effect on price. And when we’re at the lower end of volume offers, I’m going to buy the least so that I have the least amount of effect on price.”

My sense is today, without the geographic breakdown, that China is still not very active, but other regions have been active, right? And that would be Southeast Asia and Latin America. And each of them might have their own reasons for buying or for being active.

This is a time when the volumes are at their lowest, so it doesn’t take a whole lot of marginal participation out of these groups to have an effect on the price.

And in fact, when the GDT opened up this morning, the supply-demand ratios on skim milk powder and whole milk powder were really high. And yes, we ended up higher on both of them, but if the Chinese were here or following a typical buying pattern, for us to open up on a supply-demand ratio of four in whole milk powder like we did today, we probably would have had a bigger reaction in price than what we ultimately did, only moving to 2.2% higher.

In other words, we had a very high supply-demand ratio at the beginning of the auction, and as prices ratcheted higher, we lost that pretty quickly. But I still can’t help but think that we’ve got some buyers that are participating during a time when we would normally see very little participation.

Okay. Yeah, makes a lot of sense to me. Well, John, we appreciate you giving us your insights on GDT Tuesday. The next time you and I are together is going to be in two weeks. I believe it’s the 19th of May for the next Global Dairy Trade.

If anyone has any questions, comments, or concerns, please let John and me know, and we will try to answer them to the best of our abilities.

Until then, you guys have a great week—and better weekends as spring is here. The weather is great. Get outside, enjoy yourselves. We’ll see you next time on GDT Tuesday.