Morning Dairy Comments, 11/12/2015

Thursday, November 12, 2015




General Market News

· U.S. jobless claims flat at 276,000, still near 15-year low

· Study Finds Health Benefit to Consuming Full-fat Dairy http://goo.gl/x5SH35

· New Zealand central bank warns of dairy farmer debt https://goo.gl/RZNRnp

· Large herds and heavy (cattle) weights bear down on reports of the highest frozen meat inventory on record http://fxn.ws/1HIsZfw

· Gold demand rises 8% in Q3 http://goo.gl/LRM9YU

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Class III, Cheese, and Whey

Class III and cheese futures continued to track lower Wednesday as sell side interest was rather broad-based amid light news.  Yesterday's 2 cent dip for both blocks and barrels did little to change uncertainty around cash prices and sentiment.  December thru March class III futures are nearing psychological support levels near $15.00, leaving the deferred timeframe more vulnerable to pressure as they remain at a healthy premium. The question remains as to how the spot spread will be corrected and whether or not demand remains strong enough to provide material support. Barrels are rapidly approaching levels where buy side interest has repeatedly stepped in to secure product and with the holiday demand season upon us, that trend is likely to remain intact. For the time being, there's been a lot of red on the board to contend with as cheese and dry whey futures are following sentiment in Class III.

Drilling down the 2nd half strip for 2016 please refer to the chart below where there is support at $16.65, which will likely be an area of interest as far as technical areas are concerned. It would not be surprising to see some profit taking at that level which would offer some temporary consolidation to the market with a probable push back to $16.75-$16.80 coming on those heels. If the trade shakes out accordingly and pushback subsequently materializes at $16.80, look for prices to weaken significantly with a possible test of the August lows in the crosshairs.

July-December 2016 Strip~Daily

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

Class IV, Nonfat, and Butter Futures

Spot prices for both NFDM and butter have yet to budge this week, remaining at $0.8100 and $2.8850, respectively, which has futures clearly on edge as markets don't like uncertainty. Yesterday's trade was evidence of that as NFDM continued its nosedive on heavy volume (468 contracts) while butter put up mixed numbers on lighter volume (133 contracts). At the end of the day NFDM futures are sub $1.00 through Q1 with the balance of the forward curve shedding premium, a reflection of fading optimism for a sustainable bullish rebound in 2016. Butter on the other hand continues to shrug off the reality that exports are in the tank, imports are hitting our shores and prices are at levels that are not sustainable, putting the risk in the trade to the downside.

We look for NFDM, Butter and Class IV to open slightly lower.

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

1

$1.6800

DOWN 2

1

0

 

BARRELS

3

$1.5700

DOWN 2 

0

1

NFDM

GRADE A

2

$0.8100

UNCH

0

0

BUTTER

GRADE AA

0

$2.8850

UNCH

0

0



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NZX Futures

Fonterra has removed another 20,000 tonnes (5.14%) from the 12 month forecasted volumes to be offered on GDT, dropping the volume back to 369,380 tonnes. Fonterra have citing expected milk collections from their farmers to be down 5% for the season to be the reason for the declines in offered quantities.

All NZX trading action that took place overnight occurred on WMP and SMP with a combined 555 lots traded. NZX WMP, trading 395 lots posted losses of $30-$180 with Dec15 to Feb16 posted the greatest losses. A similar trend was observed for NZX SMP which traded 160 lots as Dec15-Mar16 posted losses of $50-$110. There was a distinct lack of buyers in the NZX market yesterday so it will be interesting to see if the reduction of offered quantities can attract some back in today.

Grains

Bargain hunters were rewarded yesterday in the grain markets following Tuesday's bearish USDA report (recap below) that hammered away at the entire complex and drove many contracts to new lows. Though yesterday's upside action was modest, it is reflective that the trade got out ahead of what was largely expected to be bearish numbers and had a lot of that already "baked into the cake". Fundamentals would suggest that the bearish skew should remain intact for the time being, however a short term bounce to the upside is likely as bean exports have been healthy and corn basis has been firm, with farmers taking grain straight from the field to the bin in hopes of making sales at a later date at higher levels.

Keep in mind, it is the job of the marketplace during times of surplus is to find a level where prices spur demand while discouraging production. The market is doing its job. Prices are seeking the area of value that will build a demand base for the future. The process is slow and painful for the farmer and is typically only sped up by widespread weather problems. For now, the only real weather story is in the Former Soviet Union, where relief showers are currently falling.

We look for grains to open 1-4 higher this morning.

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