Morning Dairy Comments, 10/12/2015

Monday, October 12, 2015

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

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


clip_image004General Market News

· China stocks rally on new stimulus plans

· ICOS slams increased US butter tariffs

· Glencore puts Australian and Chilean mines for sale

· Dell to buy EMC for $65 bln- a record sized tech deal

· Ferrari to be valued about $10 bon in IPO

· Kevin McCarthy quits in race for House Speaker

Class III, Cheese, and Whey

Class III futures benefited from the 3 cent rally in the Blocks during the spot session, widening the Block/Barrel spread to 8 cents, as contracts through the end of 2016 settled unchanged to 10 cents higher.  The first quarter pack average gained 7 cents on the day to close out the session at $16.08, marking a 29 cent gain week over week. 

The WASDE report released Friday pegged 2015 milk production at 208.9 billion pounds which would indicate a 1.4% increase in milk production year over year.  Milk production for 2016 is projected to reach 213.0 billion pounds, 2.0% higher than 2015 production levels.  Looking deeper into the WASDE report, imports of fat based products are estimated to increase by 39.53% for 2015 as demand for cheese and butter, and the high prices compared to the international marketplace have spurred shipments to the U.S.  Contrarily, exports of fat based products out of the U.S. are forecasted to fall by 27.42% compared to 2014, hindered in part by the strength of the U.S. Dollar compared to foreign currencies. 

EU milk production year to date is estimated to be running 1% higher than during 2014.  Milk production during the first three months of this year was estimated to have decreased by 1.3% as producers in Europe worked to constrain production to limit over quota production and surplus levies.  For the months of April through July milk production was running 2.5% higher than during the same months in 2014.  The increased milk production is attributed to farmers' decisions in 2014 to add cows to their herds.  In the EU-15 in December 2014 the dairy cow herd was estimated to have expanded by 0.8%.  During June through July, for those states with available data, the dairy herd was projected to have grown by 1.2% with the largest gains in the main exporting countries of Ireland, up 5.7%, and the Netherlands, up 3.5%, with the UK growing by 2%.  So what could this all mean for the U.S. dairy markets?  Milk production within Europe and the United States is projected to see continued growth.  Barring a drastic impact on milk production in New Zealand attributed to a strong El Nino, global milk supplies will overwhelm demand leading to a further depression of dairy product prices, erasing the recent price gains experienced of the last month plus.    

Cheese futures finished mixed, but mostly higher, as contracts through the end of 2016 settled between down 0.2 cents to a penny higher.  The first quarter pack average tallied a 0.6 cent gain to $1.7013 while gaining a total of 1.33 cents week over week.

Dry whey contracts ended Friday's trading session with mixed pricing by settlement with contracts closing between 0.3500 cents lower and 1.850 higher.  The first quarter pack average rose 0.3384 cents to 34.2667, 1.7417 cents higher than its close the week prior. 

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

Spot Session Results











UP 3














DOWN 1 ¼    







UP 3 ¾





Class IV, Nonfat, and Butter Futures

Class IV futures settled marginally weaker in the nearby months as both October and November slipped a penny lower while the remaining contracts closed unchanged to 18 cents higher.  The first quarter pack average remained unchanged for the day at $15.74 while losing just a penny week over week.  

The butter market shook off the 3.75 cent gain posted during the spot session to settle mostly lower with futures closing between down 2.00 cents and up 0.500.  The first quarter pack average fell 0.825 cents on the day to 182.158 with a week over week decline of 2.334 cents. The ICOS, Irish Co-operative Organisation Society, has strongly condemned the recent decision by the U.S. to raise the tariff on butter imports by $0.51/kg to a total of $2.05/kg to be imposed on all countries without a free trade pact with the U.S.  The U.S. is the second largest destination for European butter exports, with Ireland's Kerrygold the third largest branded butter in America.  The tariff is set to run through at least the end of the year and could continue to support domestic prices for the coming months.

NFDM futures finished the week with mixed prices by settlement with contracts closing between 0.475 cents lower and 2.000 higher.  The first quarter pack average slid 0.159 cents lower to 117.833, yet still managed a week over week gain of 1.666 cents.

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

NZX Futures

NZX futures closed out the week's trade with the WMP falling 0.86% to $2,895, yet managed a week over week gain of 0.70%.  The SMP moved 2.94% higher Friday to $2,450, accounting for the entire week's price action.  Both the AMF and Butter were quiet Friday, settling unchanged at $3,760 and $3,280l, while week over week posted a gain of 2.17% and a loss of 3.53% respectively. 



Grains markets whipsawed Friday with the initial reactions to the release of the grain supply and demand (table of results below) before settling down as the results were fully disseminated resulting in the corn and wheat markets falling lower while the soybeans added value. The December corn contract settled 8.50 cents lower to 382.75 while the March contract fell 8.25 cents lower to 393.50.  Harvested acres for corn were projected to have fallen by just over 400,000, yet the 0.5 cent bushel per acre increase to 168.0, if realized, would put this year's crop yield as the second highest on record.  The December and March wheat contracts both settled 2.25 cents lower to 509.25 and 516.75 respectively.  The U.S. carryout for the wheat was estimated at a lower than expected 861 million bushels, yet world ending stocks were projected at a higher than anticipated level as the USDA downplayed the impact of the recent dryness in Australia.  The rally in the soybean market was triggered by the 1.149 million acre decrease in anticipated harvested acres leading to the November contract to settle at 885.25, up 4.50 cents, as the January contract settled up 4.25 cents to 890.50.    

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



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