Morning Dairy Comments, 10/23/2015

Friday, October 23, 2015

"Facts matter not at all.  Perception is everything." – Stephen Colbert


General Market News

· China's central bank cuts rates for sixth time since last November

· US stock future extend gains on China interest rate cut

· ECB's Draghi signals boost to stimulus program, sends Eurozone gov't bond yields to new lows.

· Eurozone PMI gains, suggests no China impact yet.

· Hurricane Patricia: Mexico awaits 'strongest ever' storm



Class III, Cheese, and Whey

Class III and cheese futures saw two-sided trade yesterday ahead of the afternoon release of September's Cold Storage report.  The spot market provided little in the way of direction with blocks holding steady at $1.6125 and barrels offered down a penny to $1.5925.  Nearby class III futures essentially had a 10-15 cent range either side of unchanged (1-2 cents for cheese) in a mixed trade.
The USDA handed out some bitter cheese storage news in their September Cold Storage report yesterday afternoon.  All categories of cheese inventories (American, Other and Total) came in above our expectations and at all-time record levels for the month of September.


Big cheese inventories are not new this year.  The US cheese market's ability to stare down good inventory levels, absorb bearish news and remain rather stable has been quite impressive this year.  But a key question for the balance of 2015 and beginning of 2016 is what happens if/when the overhang of cheese overwhelms the market? For the time being, we are in cheese season and for the past several weeks demand in the country is reported as rather mixed for this time of year.  Some folks tell us it's strong; others say it's remarkably quiet for this time of year.  If today's cheese demand is the best we have to offer, what will be the argument for continued buoyancy in the marketplace 30, 60, 90 days down the road? 
For the week ending October 10, dairy cow slaughter under federal inspection was up 6.5%, at 58,900 head, compared with the same period the previous year. Year-to-date slaughter levels are 3.99% higher than 2014 levels, with 2,290,000 head slaughtered.  Monthly culling rose 5.9% from last month, hitting its highest level since March.  We'd expect to see cull rates continue on this path and post large gains over the next several months.


We look for Class III and Cheese to open lower and Dry Whey to open mixed.

Spot Session Results

























UP 1 ½ 







UP 5




Class IV, Nonfat, and Butter Futures

NFDM and Butter got a boost in prices and got after it with volume yesterday.  Trading 300+ contracts in NFDM is rather common lately, but butter futures have had a rough go of posting more than 50 contracts most days recently. Not yesterday. 209 contracts traded Thursday as the spot price pushed 5.00 cents higher.  November, December, January and April butter contracts all finished limit up (5.00 cents higher) yesterday as the January to December pack average pushed back to $1.90 again. With yesterday's Cold Storage numbers arriving heavier than expected, we'd look for a lower opening for butter futures today.  And, as we've mentioned in previous posts, cream seems to be more widely available today than even several weeks ago.  With that, we'd expect some Grade AA to continue to make its way for sale during the spot call sooner rather than later.  But there's still a two-sided trade to the market for now.
NFDM turned back to the upside yesterday after having traded mostly lower for much of October.  Granted, the futures appeared to have been 'oversold' technically. But spot buyers also see value in the mid-80's as evidenced by 10 loads trading up 1.50 cents to finish at 86 cents.  We don't think that story changes today.  Look for more powder buying in the mid-80s.

The Dairy Market News Western Mostly NFDM price was down 2.50 cents from the previous week at 93.50 cents per pound. Last week's CA Weighted Average price was 91.74 cents, up 4.66 cents from the previous week.   We look for NFDM, Butter and Class IV to open slightly lower this morning.


Grain markets continue to be dominated by harvest pressure, technical resistance, USD strength, and generally the feel that upside is currently limited. The trade did make a run at establishing basing levels of support over the past few days but inevitably has failed to gain upside traction and remains vulnerable to sell-offs as a result. Yesterday's bean export tally was impressive, but all things considered didn't have the mustard to spark bullish continuum in what turned out to be a short-term "buy the rumor...sell the fact" situation that developed.  Nevertheless, we're recommending that end-users take stock of feed needs and take some appropriate action to get some feed needs bought.

From the New York Times: The National Oceanic and Atmospheric Administration, the American agency that tracks worldwide temperatures, reported that last month had been the hottest September on record, and in fact took the biggest leap above the previous September that any month has displayed since 1880, when tracking began at a global scale. The agency also announced that the January-to-September period had been the hottest such span on the books.

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