Morning Dairy Comments, 12/14/2015

Monday, December 14, 2015

General Market News

· GDT auction tomorrow

· S & P shows biggest weekly decline since August    ; up 20 pts overnight before heading back down

· Crude below $35 (first since 2009)

· Dow down over 300 points on Friday for a 3.3% loss on the week

· Fed meeting Dec. 16th (Wednesday), rates are largely expected to rise



Class III, Cheese, and Whey

The class III market finished out the week sharply lower as spot market pressure on both cheese and butter weighed late in the week. Friday’s session saw prices fall by 11 to 33 cents in the 2016 contracts. The block price hit the lowest level we’ve seen going back to early 2011 as it fell by 7.25 cents last week. The market had seemingly been a bit hesitant to fall off sharply as butter was holding much longer than normal in the upper 2’s but with that pressure valve being released down we went on cheese. On the week the Jan to March pack average fell by 54 cents to $14.06 it fell by 25 cents on Friday alone. Seasonally cheese prices usually continue to decline in the coming weeks and we think that should be the case this year. Most January needs for cheese (football playoffs and super bowl) should be filled by this time and that leaves a downtime for demand from Feb through the start of grilling season which may allow for prices to continue to soften.

It will be a busy week news wise with the GDT on Tuesday and milk production coming Friday afternoon. On a more positive note for dairy prices while the USD has been a big negative in terms of commodity pricing across the board and on dairy exports of late, last week we saw a significant drop and the chart has the look of a potential continued bearish move. This week will be very important technically as we test some of the longer term moving averages.

Daily USD chart:


The dry whey market sold off on Friday as well with settlements ranging from 0.025 to 1.800 cents lower through 2016. Volume continues to be very strong as prices continue to sag with over 200 trades taking place on Friday. The Jan to March pack fell by 1.4416 cents last week to 25.1917 cents. DMN prices were stable and while the EU prices continue to be under pressure the dairy products report did show declining stocks we have to wonder if some turn around in pricing can be seen before the end of the year.

We expect class III and cheese to open mixed and whey firm

Spot Session Results











DOWN 2 ¼







DOWN 6 ½







UP 1 ½












Class IV, Nonfat, and Butter Futures

It was a very volatile week for the class IV and product markets last week as we finally saw the spot butter market trade lower. For the week spot butter was down 70.25 cents. As you can see in the chart below we still remain at a record price level for this time of year as the spot market falls futures have traded a bit lower as well, on Friday December was limit down but February through June were down just 0.200 to 0.750 cents. The convergence of the spot and futures markets will be very interesting to watch in the coming weeks, with the early Easter holiday we wonder how quickly the buy side might step in to stop the recent declines on spot. If we find support near the current level of $2.20 futures will have to rally to play catch up however if we continue to fall on the spot market where do we stop? Sub 1.90? When we would be below the futures market? Sub 1.67? which was the highest price of spot butter on December 31st over the past 10 years. It’s so hard to say as this truly is an unprecedented situation we’d suggest looking toward options for price protection over the next few months as the potential pricing range seems to be anywhere from $1.60 to $2.30 through the early Easter holiday this year.


NFDM prices interestingly were firmer on Friday one of the few products that was green on our trading screens. Settlements ranged from -0.425 to +1.000 on lighter volume. The NZX markets have been on a tear to the upside of late and are pricing out at over 90 cents in early 2016 contracts that strength seems to be spilling over to our futures as well. For the week the Jan to March pack was up 0.316 cents to 92.483 cents. It’s a tough spot currently for futures as they look to price out near the international market prices but must eventually converge with the spot market that is trading sub 80 cents. We struggle to see much upside in the international markets beyond the $1.00 mark as most end users seem to be pretty well booked through the first half of 2016 but sub 80 cent NFDM on the spot market also seems to be a bit too low as well. The likely outcome for the early 2016 contracts is an upward correction for spot but a continued slide for futures in our opinion. This week’s GDT auction will go a long way in determining if our spot market can remain firm in the short run.

We expect NFDM to open lower and butter to open steady to soft




The grain markets closed out the week softly with corn down 4 cents to $3.7525, beans down 7.5 cents to $8.7375 and wheat down 1.75 cents to $4.8275. On the week corn and soybeans both settled lower as corn was down 6.25 cents and beans were down 34.25 cents. The charts look a bit mixed with soybeans falling below most of their major moving averages but corn still holding its upward trend. From a fundamental standpoint the USDA’s December report held no changes what so ever and weather remains mostly favorable for South America with plantings ahead of their normal pace. With exports continuing to run behind pace despite the slightly bullish look on the charts it’s difficult to get too bullish.

Daily March corn chart


Last week the USDA released some preliminary supply and demand tables for the 2016/17 crop year. They look a bit bullish vs. what we might expect as carryout to use ratio is expected to decline across all three major crops based on these early expectations. Usage numbers look pretty optimistic in our opinion for not just this year but also next year as they show a nice increase from this year’s expected demand.


We look for a firm opening to the grain complex today

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