Morning Dairy Comments, 12/07/2015

Monday, December 07, 2015

General Market News

· Pearl harbor remembrance day is today

· Obama laid out plans for fight on terrorism; new gun laws, stricter visa processes but no new military initiatives  

· Think tank says China will grow 6.5% in 2016

· Crude oil falls below $40; Ruble falls; OPEC allows producers unlimited pumping capacity

· France’s far-right National Front gained the largest share of support in a first round of regional elections

· Venezuela voter give opposition big win, delivering blow to Maduro



Class III, Cheese, and Whey

The bear shows no signs of straying from his current trail to head off into hibernation as he continues on the prowl underneath the shadow that overhangs the Class III and cheese markets and on a larger plain, the global dairy space as a whole. Let’s make no mistake about it, this is a supply and demand driven market and what we’re witnessing here is heavy inventory levels that have and will continue to take a toll in the form of price decay. The erosion over the past few weeks is indicative that the trade has no illusion of what the fundamentals are and are loath to track a spot market that at times shows glimmers of bullishness. The fact is, the bullishness only presents at levels where support in the cash market has proven to be repeatedly formidable, in the low to mid $1.40’s for barrels, and at times it appears that such support is more defensive in nature than anything else. Friday’s soft spot call is hinting that another trip down to those levels may be in the offing and one has to wonder if the defense mechanism that has proven to keep this thing from outright implosion remains intact. Production remains strong as well as demand, but let’s not forget this is cheese season and we’ve been diverging from seasonal strength. In other words, if the market is weak at a time when it ought to be strong, that doesn’t bode well for the bullish camp.

The disparity between milk producing regions from a domestic standpoint is striking and telling at the same time, with conventional wisdom suggesting the market is functioning with sound reason behind it. The Midwestern milk shed continues to crank out and do the heavy lifting, thus boosting cheese production, while California and parts of the western milk producing areas struggle, hence a butter market that has gone off the rails. There’s been much talk of price recovery in the 2nd half of 2016 and for illustrative purposes, we’ve provided Class III charts for the 1st half as well as the 2nd half (see below). The 1st half has entered into a congestive, sideways trade that is consolidating the recent losses while the 2nd half has shown resiliency and has posted gains to resistance levels near $16.50 (blue line). Gaining traction above that level will likely prove difficult unless a broad fundamental dynamic shift occurs. 

Let’s consider the possibility Oceania continues to trend lower from a production standpoint. Culling rates will increase and if that unfolds with a glitch in our domestic production levels (think of potential weather related issues in the Midwest and no relief from El Nino in California) then there’s a case to be made. That, in conjunction with the reemergence of large purchasing entities such as China and the remote possibility of a reversal in trend for the U.S. Dollar and the bull likely starts to trot. Those scenarios are the outliers however and without a material shift in the current fundamentals, it’s very plausible the lows have yet to print.   

Block cheese prices were down 6.25 cents on the week, to close at $1.5175/lb., in a market that saw 16 loads change hands. The block price is 6.25 cents below last year’s price. Barrel cheese ended the week 6.50 cents higher at $1.4850/lb., with 13 loads traded. The price is 6.50 cents below a year ago. The spread between block and barrel cheese is 3.25 cents, inside the historical range of 3 to 5 cents. Based on Friday’s settling spot market, the Class III milk price would be $13.91/cwt., after calculating to $14.53/cwt. last week.

Cheese holdings in selected storage centers as of November 30 were up 0.6% from the previous week, at 95.2 million pounds and are 1.1% higher than year-earlier stocks.

Dairy Market News reports the cheddar cheese price for November 16 – 27 in Oceania at $1.4288/lb., unchanged from the previous period.

The midpoint Central dry whey mostly price was unchanged from the previous week, at 21.13 cents but 36.62 cents lower than the comparable period in 2014, Dairy Market News reports. The Central dry whey mostly price as reported by Dairy Market News for November averaged 21.05 cents, 37.64 cents lower than 2014’s price but up 0.60 cents from last month. During the month, the dry whey price was up 0.63 cents at 21.13 cents. Dairy Market News reports the sweet whey powder price for November 16 – 27 in Western and Eastern Europe at 29.48 cents per pound, down 1.14 cents from the previous period.

For the week ending November 21, dairy cow slaughter under federal inspection was 7.6% higher at 59,500 head, compared with the same period the previous year. Year-to-date slaughter levels are 4.1% higher than 2014 levels, with 2,641,200 head slaughtered.

Class III Jan-June~Daily


Class III July-Dec~Daily


We look for Class III and Cheese to open steady a little higher and Dry Whey to open firm this morning.

Spot Session Results











DOWN 3 ½  







DOWN 2 ¾  







DOWN 1 ¾







DOWN ¼  




Class IV, Nonfat, and Butter Futures

The Class IV market has been the benefactor of the persistent strength in the butter market and NFDM maintaining levels at the lower edge of the range. Nearby contracts have moved most aggressively with the December contract posting an 80 cent gain over the past couple weeks and residual spillover dragging deferred months in tow.

The trade remains in a bewildered state and looks on in awe at a butter market that defies gravity and logic. Expectations for a collapse in prices have been dashed and replaced with periodic panic, as market participants who have been sitting on the fence have been forced off of it. Are prices sustainable at current levels? Of course not! However, until further notice the floor has likely been raised on the yellow giant and we can likely kiss levels of yesteryear goodbye. Back to back years of record price action will have the effect of a triple espresso on a jittery trade and encourage a proactive hedging approach moving forward.    

The butter price settled the week at $2.9025/lb., up 0.25 cents from last Wednesday. The price is 91.75 cents higher than in 2014. Butter holdings in selected storage centers, as reported by Dairy Market News on November 30, were down 2.5% from the previous week, at 7.9 million pounds but are 40.2% above 2014.

Dairy Market News reports that the 82% butter price for November 16 – 27 in Western and Eastern Europe was $1.4345/lb., up 2.27 cents from the previous period. Oceania’s price was $1.3154/lb., up 2.26 cents from the previous period.

The NFDM market has stymied recent pressure but continues to plug along near the lows of the recent range. Fact is, oversupply will need to be worked through before sustained price recovery ensues and we would expect the recent spike in the export market to be bargain hunting in nature, with entities taking advantage of basement level prices to beef up inventories. That said, we would expect the climate to remain soft when those inventory levels swell to comfortable levels and purchasing once again cools off. The latest GDT auction also provided a certain level of support, most likely more psychological in nature as the trade will need to see a string of higher results to be convinced of a shift in trend.

Dairy Market News reports the midpoint Western nonfat dry milk (NFDM) mostly price at 77.38 cents per pound, up 0.38 cents from the previous week. The price is 39.37 cents below 2014’s price. The Western nonfat dry milk mostly price reported by Dairy Market News averaged 81.38 cents in November, 44.73 cents below 2014 and 11.88 cents per pound higher than last month. The nonfat dry milk price was 11.12 cents lower during the month to finish at 77.38 cents per pound.

NZX Overnight:


We expect NFDM and Class IV to open mixed and Butter to open steady/higher today

From Our European Office:

Irish milk collections for November expected to increase by 50% on last year

It was reported last week that a survey conducted by the Irish Farmers’ Journal of Irish dairy co-ops has shown that Irish milk collections for November are expected to increase by 50% (155kt) on November 2014. Ireland has the largest seasonal variation in milk production in Europe, running to a seasonal low in Dec/Jan. With the looming superlevey fines last year and a significant number of Irish farmers over quota, November production was muted as farmers dried off cows early. 

EEX Futures

A combined 58 lots (290 tonnes) traded on EEX on Friday bringing last week’s  total traded volume to 253 lots (1,265 tonnes). Butter traded a total of 164 lots (820 tonnes) while SMP traded 125 lots (625 tonnes). Of the 58 lots traded on Friday, 34 lots (170 tonnes) traded on EEX butter. Feb16 and Mar16 traded 2 lots each on Friday, settling €31 and €6 higher respectively while Q2 traded 10 lots per month settling €42, €42 and €38 higher respectively. EEX SMP traded 24 lots on Friday. All traded activity took place on Q2 which traded eight lots per month and settled €12, €21 and €38 higher respectively.

NZX Futures

NZX traded 285 lots/tonnes overnight with this week continuing in the same bullish vein as last week. All trade activity took place on SMP. Feb16 and Mar16 traded 68 lots and 40 lots each, settling up $30 and $120 respectively. Jun16 and Jul16  traded 100 lots and 50 lots each settling up $50 and $15 respectively.

NZ Soil Moisture and grass growth

Weekend rains have again added soil moisture and grass growth, with the southern half of the SI seeing the biggest benefits. The Canterbury plains still remain dry and more sustained rainfall will be needed bring soil moisture conditions back to normal levels. Rainfall has been light over the NI in the last week, with increasing dryness over the northern, central and southern areas and more sustained rainfall will be needed to keep grass growth up. Sort term relief isn’t currently on the cards, with current medium range forecasts placing a rain belt moving across towards the end of the week and a large front over next weekend, early the following week. 


Grain markets found traction towards the end of last week with the corn market able to muscle through technical resistance levels and looking poised to challenge longer term obstacles at the 50 day moving average (red line on chart below) and possibly objectives toward the $4.00 mark. Lack of farmer selling has kept firm overtones intact which has prompted fund managers to cover a percentage of their short position. The market has shown unwillingness to press the market lower and therefor the path of least resistance remains to the upside with a possible acceleration if funds decide to bail in earnest.

The soybean market is in a similar situation as a short covering rally sparked by managed money and strength in bean oil leading prices to the upside. A well-defined bottom has been carved out and areas of technical resistance have been breached, with the longer term target now resting at the 200 day moving average (black line on chart).  If the market is able to crank through that level, it could open price action up to a larger upside wave.  

March Corn~Daily


January Beans~Daily


We look for Corn, Soybeans and Wheat to open mixed

Unless otherwise noted, the posts on this blog should be construed as market commentary, merely observing economic, political and/or market conditions, and not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. or its subsidiaries. INTL FCStone Inc. is not responsible for any trading decisions taken by persons viewing this material. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. or its subsidiaries. Reproduction without authorization is prohibited. All rights reserved.

Market Intelligence Free Trial