Morning Dairy Comments, 10/05/2015

Monday, October 05, 2015




"It's not the years in your life that count. It's the life in your years". ~ Abraham Lincoln       

Don't forget to register for our upcoming EU Dairy Market Outlook and Risk Management Seminar

http://intlfcstone.cvent.com/events/2015-european-dairy-outlook/event-summary-75a1950b34ef4f18952ec7f1b49f45c1.aspx

Please see the full agenda below and let me know if you have any questions

 

General Market News

· TPP nears agreement: http://www.marketwatch.com/story/trans-pacific-partnership-trade-deal-nears-agreement-2015-10-05?dist=beforebell

· Gelncore stock jumps 71% in HK trading

· Ferrari IPO around the corner

· President of Boston Fed, Eric Rosengren says 2015 rate hike is possible

· GDT October 6th

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Class III, Cheese, and Whey

While the spot cheese markets maintained their upward momentum on Friday the class III market traded to a mixed close with Nov down 8 and Dec down 7 while other contracts were steady to +11 on the day. It appears to us that the cheese market has found some strength partially due to seasonal demand as well as the market responding to the significant gains seen in class IV. The October class III vs. IV spread went from $3.70 with class III above IV to an inverse of $1.78 to close last week. The spread narrowed slightly this week with class IV settling at a $1.21 premium to class III on Friday. The October class III contract was up 19 cents on the week to $15.69. That's a very small move considering the block market was up 15.75 cents on the week while barrels gained 6.75 cents. The futures market seems to lack faith that the cheese market gains will hold up over the long term as current spot valuations are above nearby futures values. On the week the Oct to Dec pack was actually down a penny to $15.68 despite the spot gains.

Cheese futures finished Friday's session in line with the class III market mixed from -0.006 to +0.0010. Volume was relatively light and technically the Oct to Dec chart looks bullish currently. Whey prices were mixed on Friday with nearby months mostly lower while deferred contracts were steady to 1.500 cents higher on moderate volume. The dairy products report was overwhelmingly bearish on dry whey but deferred contracts continue to find support seemingly as buyers look to take advantage of some of the lowest prices we've seen over the last 5 years. For the week the Oct to Dec pack settled at 27.05 cents down 0.333 cents from the prior week.

A Technical Perspective:

CLASS III MILK:

    The October medium-term continuation contract tested support at 15.07 and 14.84 and formed a green bar bottom at 15.18 this week before closing at 15.66, near the high of the week at 15.81, and this generated a new medium-term system buy signal from long-term bullish support.

Resistance remains at the red bar top at 16.55 made Aug. 14.

The 30-week cycle low (purple arc) is due, and this week's bottom was made from the bottom of the long-term parallel-line uptrend channel.

This week's bottom also was made from the above the bullish 62% retracement support level at 15.07 of the long-term range.

Major resistance is the set of double Fibonacci lines at about 16.90.

    The short-term study for the continuation contract shows the buy signal from three days ago, when it made a bottom at 15.37 from the bottom of the downtrend channel and from the green medium-term support line drawn from the bottom made 15.36 on March 5, which has resulted in this week's new medium-term buy signal as noted above.

    We repeat the long-term update we sent out at the end of September, showing the green bar long-term bottom at 15.18 made from above the 200-month moving average at 15.16, which is SECULAR support, at the 39-month cycle low, which was a Pesavento projected low, and this month the Pyrapoint projected long-term low is due. The long-term system would tend to go on a buy signal at the end of October on a close above 15.19, compared to today's close at 15.66.

    THEREFORE: this week's short and medium-term buy signals are beginning to confirm the existing long-term bottom made in September from bullish secular support, which may turn out to be a long-term bottom and new long-term buy signal at the end of October. If this happens it would negate the original wave-5-down projection, and signal instead that the whole correction from the top at 24.59 made a year ago in September, 2014 had been only an ABC correction to the downside, which would be bullish.

A monthly close under 15.18 would negate this bullish hypothesis.

    The November medium-term contract made a lower low this week, at 15.32, but formed a green bar bottom there before closing at 15.61, which confirmed last week's medium-term buy signal.

Resistance is last week's high/top at 15.94 from the blue long-term resistance line drawn from the bottom at 15.93 made July 24.

    The April medium-term contract continues to rally within the buy signal from the week of Aug. 21, following the bottom made the prior week at 15.26, within wave-3-up which continues to project to about 16.59, due about the week of Oct. 16, in the top purple circle.

(We already have shown that there was a general commodity bottom made in August.)

Support now is 15.91.

     The April long-term update shows last month's long-term buy signal following the green bar bottom made in August at 15.26, which now is a swing low bottom confirmed by September's monthly bar.

The contract is beginning to break resistance at 15.91 and 15.97, closing today at 16.01.

CHEESE:

    The October medium-term continuation contract remains on the sell signal from the week of Sept. 4, but it formed a green bar bottom this week at 1.65 before closing at 1.68 in mid-range, from the Pyrapoint support line and from

the "sweet spot" (top of the old downtrend channel, with the system itself oversold and down only to bullish support, and with the ADX long-term system at BULLISH STASIS (green buy pressure line touching and on top of the red sell pressure line,) so this is a bullish bottom within a bullish setup.

    The November medium-term contract made a lower low at 1.66 to test the 1.272 projection level at 1.66, where it formed a green bar bottom before closing at 1.70, above last week's close at 1.69, which generated a hook reversal up,

with the system itself oversold and at support, while showing positive divergence, and set up to go on a possible buy signal next Friday on a close above 1.70, compared to this week's close at 1.70, but resistance at the green line drawn from the prior bottom at 1.70 made Jan. 23 held this week, aligned with the bottom at 1.70 made the week of July 24.

DRY WHEY:

    The November medium-term contract confirmed last week's buy signal, following the green bar bottom made the prior week at 23.60, but formed a minor red bar top this week at 27.58 before closing lower on the week at 26.70, in a retest/failure of the extremely bearish 25% retracement/resistance level at 28.16.

We expect a firm opening in both class III and cheese and a steady open in whey

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

0

$1.7475

UP 3 ½

1

0

 

BARRELS

6

$1.6175

UP 3 ¾

1

0

NFDM

GRADE A

6

$1.0600

UNCH   

1

1

BUTTER

GRADE AA

11

$2.5000

DOWN 20

1

2



 

 

Class IV, Nonfat, and Butter Futures

Class IV closed out the week mixed though mostly lower. Settlements on Friday ranged from -48 cents to +30 cents with nearby contracts Oct through July steady to lower and deferred contracts in the second half of 2016 were steady to +30. For the week class IV futures were mostly lower as the spot butter market fell 63.50 cents from the prior week- with that entire decline (and then some) already priced into deferred futures contracts. The Oct to Dec pack average finished the week at $16.20 down 34 cents from the prior week.

The butter market finished the week lower as the spot market dropped 20 cents on the day with heavy volume traded. Volume was relatively light on futures considering how far prices moved settling down 0.250 to the limit lower from Oct through March. Overnight prices were steady to lower to open the week. The Oct to Dec futures pack finished the week at $2.22325 a decline of 14.967 cents vs. the prior week. We'd expect the downside momentum to continue this week though it's likely that trading volume will continue to be very strong as the holiday season is upon us and we'd be a bit surprised to see prices drop below the $2.00 mark this week though by the end of the month that seems likely to occur.

NFDM futures interestingly closed out the week on a downtick. The spot market was unchanged on Friday and the prior afternoon the dairy products report was viewed as bullish vs. expectations. It's difficult to say what triggered the downturn but futures were 1.00 to 2.00 cents lower from November through May 2016. Volume was strong with over 170 trades taking place. We'd expect a quiet trade today as the market will likely take a breather ahead of the GDT auction tomorrow. For the week futures closed higher as the Oct to Dec pack was up 2.892 cents to $1.03342. Nearby futures are now trading at a slight discount to the spot market which was up 12 cents on the week. The forward curve however continues to show a strong carry however so while we'd expect the gains to slow now that we've exceeded the $1.05 mark on spot the market still reflects an anticipation that prices will continue to rise.

A Technical Perspective II:

BUTTER:

    The October medium-term continuation contract rallied sharply this week after completing a 3-week down bullish correction, preserved the buy signal from the week of July 31, when it bottomed at 189.00, and this week it made a high/minor red bar top at 259.98 before closing at 253.02, as it continues to head up to retest the long-term top at 288.95 made the week of Sept. 19, 2014, with support now at 251.35.

    The November medium-term contract confirmed last week's red bar top at 246.98 and closed at 221.48, near the low of the week at 216.82, which generated a new medium-term sell signal from what may turn out to be a

long-term top, but bullish support at the 50% retracement level at 216.20 held this week, compared to this week's low/minor green bar bottom at 216.82.

The next timing low is due about October 23, when the 28-week cycle low and the Pyrapoint projected low coincide, at about 208.91 or 198.54.

NON-FAT DRY MILK:

    The October medium-term contract gapped higher as October became the front month and closed at 96.25, leaving a gap at 82.75, which is support, and there is higher support than that at 85.25, within the medium-term buy

signal from the week of Aug. 21, following the bottom made the prior week at 73.20, which appears to have been a long-term bottom as well.

    The November medium-term contract remains on the medium-term buy signal from the week of Aug. 14 at 80.00, which was a long-term bottom, but this week it tested the 50% retracement level at 109.02 and failed, as it also did

last week, and closed at 105.00, with bullish support holding at 102.15.

We expect a lower open in butter and class IV, a firm open to NFDM

NZX Futures

NZX futures opened the week on a mixed note with WMP prices mixed from -10 to +65 while SMP prices were steady to +25. Last week NZX futures were up $80 at $2,980 on WMP, SMP was up $110 to $2,450, AMF was up $140 to $3,850 and butter was up $130 to $3,480. It was announced last week that SMP volume was increased by 600 tonnes across all contracts for tomorrow's auction. This is the first volume increase since prices began rallying on volume being taken off the auction. Despite this some are calling for price increase between 10% and 20%. Last week most WMP contracts gained between 6% and 8% while AMF April gained 7% on the week and SMP rallied 8% in multiple contracts. September WMP volume was up 60% year over year to 20,152 MT.

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Grains

Grains closed out the week on a mixed note with corn slightly higher while soybeans and wheat were each lower. The market has gotten very quiet of late as harvest is upon us and prices have been hesitant to move much in either direction. On the week corn was up 0.25 cents while soybeans were down 15 cents. The market will have more fundamental information to absorb this week as the October USDA report will be released on Friday morning. Below we include both the daily corn chart as well as the daily soybean chart. Currently the corn chart looks a bit bullish though there is a lot of resistance just above the market and soybeans look slightly bearish though seasonal lows are just below the current market price. We wouldn't expect a big move early this week but do think the market will start to see some harvest pressure as the week progresses and we will see if USDA has any surprises on Friday.

Daily December Corn

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Daily November Soybeans

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We look for a firm open to the grain complex this morning

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