Morning Dairy Comments, 12/01/2015

Tuesday, December 01, 2015

EEX Futures— Record Month

A total of 110 lots (550 tonnes) traded on EEX yesterday, the majority of which traded on EEX butter (90 lots) and remaining 20 lots trading on EEX SMP as all lots traded yesterday settled lower. Q2 2016 butter traded 20 lots per month yesterday settling €60-€65 lower at €2,922, €2,952 and €2,977 respectively. Q3 2016 butter traded 10 lots per month settling down €48-€74. EEX SMP saw 5 lots each traded for Jan16, Feb16, Apr16 and May16. All lots settled lower, down €20-€36.

Yesterday’s trade tops up an already record month, with a total of 1579 lots (7895 tonnes) of EEX dairy futures trading, smashing though the previous record month of Aug14, by an extra 61%. October had been a record month for EEX SMP, with 623 lots (3115 tonnes) but that volume doubled in November with 1246 lots (6230 tonnes), setting a new record.

Irish Milk Collections for October

The latest data released by the Central Statistics Office in Ireland shows the strong pace of milk production in Ireland continued for October. Collections for October totalled 556kt, an increase of 26.7% compared to October of last year, and 23.6% ahead of the three year average. Total collections for the year to date now stand at 6.04mmt, up 11.3% on last year’s cumulative total for the same period. Milk solids were also high, with fat and protein levels above average, helping to temper the milk price.

NZX Futures

A total of 415 lots/tonnes traded on NZX overnight ahead of today’s GDT auction. All trade activity took place on NZX WMP. Apart from Dec15 which settled down $10 after trading 110 lots, all other months settled flat to higher. Q1 2016 traded 120 lots, 40 lots per month up $20-$35. Apr16 traded 100 lots settling unchanged while a further 80 lots traded for Jun16, settling up $40. For the last number of events the futures have shown good predictive power, so expectations today are for the auction to be positive.


General Market News

· GDT auction today

· Black Friday brick and mortar sales down more than $1 billion as consumers shift to online

· Inflation may guide the pace of Fed Rate Hikes after December

· IMF approves Reserve-currency status for China’s Yuan

· US healthcare costs an average of $9,146 per person per year



Class III, Cheese, and Whey

Class III and cheese futures finished slightly higher on what looks to be a short cover rally going into months end.  The 2016 class III pack finished 8 cents higher to average 15.75.  Cheese futures finished 8/10ths of a cent higher on average for 2016.  We would expect further consolidation as we get into holiday trade.  Most holiday production/orders have been produced/placed and immediate needs should be readily met. 

The commitment of traders report was released today (delayed because of the Thanksgiving day holiday) and showed  that managed money sold just over 1000 class III contracts as of last Tuesday (adding 413 shorts and liquidating 631 longs).    Explains the wide wick candle structure from last Tuesday (see chart) as specs/funds continued to press the short side of the market.

January 2016 class III


The report also showed commercials bought 1200+ cheese futures last week adding to their long positions.  Last week cheese options trade heavily on Tuesday and Wednesday of last week.  Each day had 1700+ options traded as many bought calls and sold puts.  The long calls protect them from higher prices and the short puts help to offset the cost of the strategy and still allow some additional participation in negative price movement. 

Previously we have discussed the futures curve and the steepness of the curve; we expect that this steepness is one reason we are seeing buying in the 1st half.

Cheese futures curve 2016

Today is a GDT auction day and so the market is waiting in anticipation.  Last auction showed a 7.9% drop in average prices with cheddar dropping 5%.  NZX futures are still holding a premium to the auction in most traded products indicating the market expects a lift in WMP.

We expect class III, cheese and whey to open slightly higher 

Spot Session Results












DOWN 1 ¼







DOWN 1  







UP ¾











Class IV, Nonfat, and Butter Futures

Class IV was firm yesterday as the spot nonfat market moved up ¾ cents to 73 ¾ on no trades.  NFDM futures have been consolidating and firming lately as there has been some new commercial buying interest noted by the commitment of traders.  The powder market is showing signs of stability after 3 sizable GDT selloffs in a row after this summer’s rally.  It’s a sentiment driven market and most buyers were probably buying hand to mouth, the past 2 months, holding out for better prices in the face of bearish fundamentals.

European Central Bank members will meet this Thursday to discuss expanding their already robust monetary stimulus programs.  The Fed will meet Dec 15th-16thMarkets are pricing in a 75% chance for the 1st rate hike in a long time.  Another rate hike will continue to add pressure to the Euro and will keep a solid bid for the US Dollar.  With today’s FX rate of 1.06 the EU’s SMP intervention level is at about 82 cents or $1,800/mt.

Spot butter didn’t flinch yesterday, and traders seemed compelled to buy futures higher in the front months.  Stability in spot is driving price action in Q1 contracts.  Yesterday the Restaurant Performance Index for October printed 102.1, up 0.7 from September. This is 32nd consecutive month for the Index above 100 signaling expansion in the restaurant industry.

December 2015 Euro Futures:


We expect NFDM to open higher and butter to open mixed


Funds were strong buyers in the corn market ahead of the EPA ethanol mandate announcement pushing corn 5 cents higher on the day.  After the close the EPA announced the new blending requirements.  We are focusing on 2016 as the mandate is 14.5 billion gallons (5.18 billion bushels) well above the 10% federal blending wall.  Current peak gasoline usage will make it very difficult for the mandated ethanol production to be used in the domestic market.  Either federal standards will have to be adjusted or more ethanol will be going to export.

Wheat finished lower as we saw 2343 deliveries in the December contract pushing December down 5 ¾ cents.  This delivery period will help to answer some of the quality question.  Wheat not making millable specs will most likely be retendered. 

Soybeans finished up 8 cents following corn and the EPA announcement.  Biodiesel mandates (mostly a domestic market) were exceeded in 2015 and look to be reachable in 2016 but because the US already runs close to capacity in the crush market, we will most likely have to see bean oil exports reduced over the next two years to accommodate.

We look for grains to open firm

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