Morning Dairy Comments, 10/13/2015

Tuesday, October 13, 2015

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General Market News

· Aussie Milk production up 3.7% YoY in August

· China sep exports fell 3.7% vs. expectations for a 6.5% decline

· China imports fell 17.7%

· UK inflation falls into negative territory

· Chinese finance minister says US shouldn't raise rates yet – citing the sluggish global economy

· Opec warns that Non-Opec oil output expected to slow next year

· Arrest made in November 2014 baby formula threat made to Federated Farmers and Fonterra

Class III, Cheese, and Whey

Class III and cheese futures finished mixed in the face of a higher spot trade on low volume because of the Columbus Day holiday in the US. 

We traded 10 spot loads in barrels climbing 4 ¾ cents to narrow the spread to 4 cents.  Participants seem to be fairly comfortable at current futures pricing with no-one stepping in to suggest this market is mispriced.

Looking to the whey market we have seen a strong rally over the last month. 2016 Whey futures have risen from an average of 29.125 cents set on the day before the Global Dairy Trade auction, which rose 16.5% overall and 10.7% in cheese, to close yesterday at  35.75 cents.  This equates to about 40 cents increase in class III.  The same time period saw 2016 cheese futures start at 1.7325 and close yesterday at 1.7378.  For clarification, we did see cheese futures drop to a low close of 1.7212 during the time period.  Class III futures could be vulnerable as the markets shift positions to take advantage of the rise.

2016 Dry Whey futures


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

Spot Session Results











UP ¾







UP 4 ¾ 


















Class IV, Nonfat, and Butter Futures

The Class IV market was mixed with extremely light activity yesterday. The nonfat spot market settled unchanged with one bid left standing. Trading in nonfat futures was firm on light volume. The spot market has found equilibrium, for now, at ~$1/ pound ($2,205/mt). The US nonfat market hit resistance at $1.10/lb ($2,425/mt) and has sold off since last week's GDT auction and Algeria tender. European SMP prices are priced slightly lower than the CME's spot nonfat price. Last week Dutch SMP was priced at €1,780/mt or just shy of 92 cents/pound helped by a stronger Euro.

The silence was deafening in yesterday's spot butter market. The increase in US butterfat tariffs has certainly caught the industry by surprise. It's expected that this will keep the domestic butter bulls grinning as butter imports down the road from some countries will be less competitive.

We look for a mixed class IV, nonfat and a firm butter market open

El Niño Update

NOAA's El Niño Southern Oscillation report yesterday showed there is an approximate 95% chance that El Niño will continue through the northern hemisphere's 15/16 winter, gradually weakening into spring 2016. The map below shows the average Sea Surface Temps (STT) anomalies in degrees Celsius.  To put this into perspective: this El Niño event ranks in the top 3 strongest on record with 1997's strength outpacing this event for this point in the season. The El Niño is expected to impact Eastern Australia more in terms of dryness vs New Zealand. Weather models do suggest above normal temps and below normal precipitation over the next few months for New Zealand. So far, there is certainly variability in NZ's transition from winter into spring season s they have started off cold and wet.



NZX Futures

WMP powder futures have been pressured lower since last week's GDT auction displayed in the chart below. We may see some sellers emerge to unwind profitable long positions.  The $3,000/mt or $1.36/lb level is a key psychological level for traders especially after the swift rally from the basement levels of $1,800/mt or 82 cents/lb.


December NZX Whole Milk Powder Futures:



Grains finished mixed yesterday with Corn selling off slightly on higher USDA yield figure from Friday.  Soybeans finished slightly higher just below the 50 day moving average.  Wheat finished down slightly.  For all intent and purpose funds were absent the market; estimated to have sold 6,000 corn, bought 2,000 soymeal and sold 3,000 soy oil.  We estimate they had no activity in wheat or soybeans.

As the market continues to wait for fresh fundamental news we see the grains trading range bound around their moving averages.  December wheat settled at the 20 day moving average, December corn at the 50 day and January soybeans at the mid-point between the 20 and 50.

We look for a mixed opening in grains

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