Morning Dairy Comments, 10/07/2015

Wednesday, October 07, 2015




"Happiness is not something readymade. It comes from your own actions". ~ Dali Lama

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

· IMF forecasts Venezuelan economy to shrink the most in the world: 10%

· Strong GDT continues to underpin NZD which is up sharply by 1.5% this morning

· Crude oil set to challenge the $50 mark for first time since early September

· EU equities up again overnight set for longest winning streak since August

· The gains have the Dow set for a triple digit higher opening

Class III, Cheese, and Whey

Watching the charts was particularly interesting yesterday. We opened up strong with prices rallying sharply in nearby months November traded as much as 22 cents firmer on the day early in the morning hours but that level provided some firm resistance and prices dipped slightly from there even prior to the spot session. It seemed unnecessary for spot to rally 5.25 cents and 11.25 cents yesterday and the session today seemed intent to prove that was in fact the case. We pushed blocks down 11 cents, barrels down 6 cents today. Futures though as they were in response to yesterday's spot gains took a more measured approach falling slightly. Settlements ranged from 1 to 19 lower Oct through Feb and steady to 3 higher from there forward. Below we include the November chart and you can see a long tail on the red candlestick today the chart certainly looked primed for a correction yesterday and while fundamentally we continue to hear there is plenty of excess cheese we did settle just above some decent support yesterday. If the charts show a down turn and blow through those support levels we'd look for prices to quickly move below the old lows.

Daily November Class III Chart

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Cheese futures traded heavy volume with nearly 400 trades taking place as over 100 trades were seen in October alone and 2016 packs appeared to be active as well. The dry whey market continues to find some support from extremely low levels and settlements ranged from steady to +1.500 cents. It's a difficult market to call currently as we are so reliant upon exports and that market is driven

We look for a soft open to class III, cheese and whey

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

0

$1.740

DOWN 6

0

1

 

BARRELS

7

$1.6200

Down 11

0

1

NFDM

GRADE A

0

$1.0675

DOWN 3 ¼     

0

4

BUTTER

GRADE AA

3

$2.3500

UNCH

1

0



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Class IV, Nonfat, and Butter Futures

The tale of two markets:

GDT goes up and CME NFDM goes down. Trigger happy sellers saw limit down Dec NFDM futures trade and several other contracts nearby close to limit down, all while GDT rallied 9.9% overall and 13.4% for SMP. It was interesting to see that Monday's higher trade ended with OI lower and Tuesday's price decline saw OI move slightly to the upside though we increased OI by just 14 contracts on volume of 224 trades. Analysts globally recently questioning how much more can prices rally? We have spring off the too low prices and now private inventories should quell the rally- EU intervention holding made 8 figures of profit in no time. but for the moment firm and stability are themes as it will likely be 2016 before we see product coming out for resale as manufacturers look to see what China may do in for and in Q1 2016 as well as the interested eyes watching NZ weather and cull rates. Weekly CWAP prices were up sharply by 5.59 cents to89.45 cents on a volume increase of ~6.7% vs. the prior week to 12.2 million pounds. This will likely be supportive of nearby contracts today.

AMF index up 9.9%, average price US$3,763/MT
Butter index down 2.3%, average price US$3,037/MT
BMP index up 13.8%, average price US$1,945/MT
Ched index up 0.5%, average price US$3,234/MT
LAC index up 5.9%, average price US$524/MT
RenCas index up 4.0%, average price US$6,048/MT
SMP index up 13.4%, average price US$2,267/MT
WMP index up 12.9%, average price US$2,824/MT

The August calculated advance milk price from the EU came in at €30.91 per 100 kg standard milk and increase of €0.07 from the prior month.

 

Spot butter saw something almost as rare an occurrence as unicorn- an unchanged session. Foreign fat has made its way into the U.S. and is continuing to do so alongside seasonal lulls in activity. It might not be today, it might not even be tomorrow but lower prices are looking in sight (perhaps $1.70/lb. by October 15th), and buyers appear to be prepared to lock in on the move lower, wary of two years of high prices. Franchise restaurants looking to continually move into butter and out of margarine should help U.S. demand for this coming year as those programs need to plan and negotiate a good 6 months in advance.

NZX:

Following yesterday's GDT last night was an anticipated NZX session as GDT winning prices came out lower than the futures forward curves for late 2015 and early 2016. During the session we saw large corrections on the more deferred contracts as they played catch up buy nearby contracts were more mixed with butter and SMP settling lower while WMP and AMF continued to push a bit higher. We think this reaction was a sign that the market believes further gains are still to come in the coming GDT auctions.

 

We expect a mixed to slightly higher open in butter, NFDM and class IV

Grains

Another higher day for the grain markets as wheat led the way amid continued weather concerns as the southern plains are dry in the US, the FSU remains dry and concern for Australia grows as well. The weather concerns for wheat have seemingly given the funds some confidence in buying as the chatter grows that harvest lows are already behind us. Interestingly the battle for acres may already be at play as the soybean crop seemingly grows by the day this year and eases the US carryout concerns there may be some push to get acres switched back into corn. The spread trade has certainly been a highlight of the marketplace. While we struggle to have high hopes for demand this year with the strength of the USD and the weakness of the Chinese economy the charts are bullish currently and may support a continued rally into Friday's report (estimates below) which may show a lower production vs. current chatter in the marketplace which would only fuel more fund buying. Keep an eye out for a breakout move on the corn charts today.

We look for a steady to slightly higher opening in the grain complex

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