Morning Dairy Comments, 10/08/2015

Thursday, October 08, 2015

General Market News

· California Governor Signs Ambitious Renewable Energy Bill Into Law

· Conditions Sour for California's Dairy Farmers

· Domino's Q3 profit and sales rise, but miss expectations

· The National Retail Federation sees sales rising 3.7% this holiday season

· German exports slump most since 2009

· Oil prices climb on weaker dollar, Russian attacks in Syria


Class III, Cheese, and Whey

Sellers continued to pressure Class III and cheese futures through mid-2016 with a second day consecutive day of downdrafts which has erased much of the gains seen since bouncing off the late September lows, opening the door to extended selloffs if additional spot price weakness materializes in the near term. For the time being the bears are in control as futures attempted to break through technical resistance levels a couple of days ago but were clawed back and have now broken support levels, which will also act as resistance as denoted by the red, blue and yellow lines in the chart below. A complete freefall of prices is unlikely to occur in the short term as the "cheese season" is upon us and demand remains strong, which has been the supporting factor all year as prices around the world imploded. That said, with cheese exports falling for a fifth straight month and down 28% from year ago levels, marking the lowest total in 31 months at 22,658 tons, the market remains vulnerable to price weakness if domestic demand begins to wane.

From an international perspective, it does feel that the ship is beginning to turn from negative to more positive  as evidenced, in part, by four sharply higher consecutive GDT auction results and weather concerns in Oceania as wet conditions are affecting quality of forage (and increasing cull rates).  That said, the fact remains that ships of this size don't have rudders big enough to get the thing to turn on a dime. There is also fresh cheese sell side activity during the spot call at current levels and we don't expect that to change today.  If, however, the spot block market is supported around the $1.70 level, we expect another run at the $1.80 mark to follow.
Also being discussed this week are the long term ramifications from TPP, the largest multi-lateral trade agreement the U.S. has entered since 1994.  At face value, TPP ought to further open markets for U.S. dairy products.  But that is very long-term (think 10-15 years) and for now participating country officials will start the arduous process of ratifying the agreement, which could be finalized next year at the very earliest.  Likely the biggest take-away we see with TPP is what it says about political will to trade in the face of a lot of populous pressure lately to put up barriers rather than take them down. 
November Class III – Daily Chart


For the week ending October 3rd, the National Dairy Products Sales Report showed blocks moving lower to 1.6909 on weaker sales volume of 11,164,475 million pounds. The barrel price also trimmed back to 1.5990 on lower sales volume of 9,085,703 million pounds. Dry whey posted an incremental uptick to 0.2430 on decreased sales volume of 8,058,046 million pounds.

We look for a steady to slightly higher opening for Class III and Cheese and a mixed opening for Dry Whey.

Spot Session Results











DOWN 1 ¼














DOWN 3 ¼     







UP 2




Class IV, Nonfat, and Butter Futures

Stress cracks on the Class IV side of things are becoming more visible as both butter and NFDM futures are exuding weakness in light of instability in the spot market. The precipitous run-up to historic levels in butter have led to the rather predictable downdraft over the past two weeks as the market now attempts to collect itself and shrug off symptoms of whiplash. Ultimately, we're not convinced that the supply/demand dynamics that brought about swiftly higher prices for butter over the past month have really changed all that much yet.  Markets heat up and cool down, usually the chill comes on a lot stronger and faster, which has been the case here. That said, look for support to show up around these levels for the time being as the butter bull is likely getting his second wind.

It's much the same story with NFDM as futures rallied off baseline support from August, reaching levels that have surprised many only to fail at technical resistance points that have proved challenging over the past couple of sessions as the spot price trimmed back from the $1.10 mark. Inventory levels have experienced drawdowns as expected and, though we would not expect the market to completely fall apart here, a test of the $1.00 level is likely in order. That said, light buy side interest should materialize and scale in as the market moves lower.

For the week ending October 3rd, the National Dairy Products Sales Report showed butter prices surging to 2.8655 on decreased sales volume of 3,782,737 million pounds. NFDM prices also moved higher to 0.8757 on decreased sales volume of 18,363,059 million pounds.
We look for a mixed opening on NFDM, Butter and Class IV today.


NZX futures prices were mostly steady in today's trade as the market is likely consolidating recent gains.  Recent price gains – although somewhat warranted – may have gotten a bit ahead of themselves as markets often do and the calm up at current levels (around $3,000/mt WMP and $2,500/mt for SMP) is likely to result in at least a slight pull-back on NZX pricing in the coming days. 
The New Zealand Exchange put out their Q3 update yesterday in which they remarked that, "In the third quarter 83,222 contracts were traded, up 125% on the previous corresponding period (pcp). Whole Milk Powder (WMP) futures continue to lead the charge representing 59.5% of total volume traded over the quarter, more than 200,000 WMP futures contracts have now traded since the contract launched in October 2010. Just over 20,000 options contracts traded in the quarter; 68.9% (or 14,040) were put option contracts and 31.1% (or 6,345) were call option contracts." 

FCStone traded the very first NZX dairy contract (a WMP contract) on October 12, 2010 and we are happy to have been a major contributor to the NZX growth since the very beginning.  


Grain markets remain choppy ahead of Friday's USDA supply and demand number as the trade squares up positions and wrestles with technical areas of interest (see chart below for USDA estimates). December corn made a run at the $4.00 mark, falling just a tick shy of getting that print out on the board as it ran into resistance at its 200 day moving average (black line on the chart below) before pulling back about a nickel. That area probably holds ahead of the number, but all bets are off upon its release as HFT will likely have its 2 minute blitz on price action before some normalcy returns to the market. It wouldn't be a shocker if USDA threw a bullish number at corn and a bearish one at beans, which would bring the acreage battle for next planting season to the forefront before harvest wraps up.  Nevertheless, we still stand by our thoughts that harvest lows are in.

December Corn~Daily



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