Morning Dairy Comments, 12/22/2015

Tuesday, December 22, 2015


General Market News

· US average gas prices fall below $2 for the first time since March 2009

· CDC investigating different E. coli strain at Chipotle http://goo.gl/QbcR1G

· Fed president Lockhart sees “gradual” rate hike meaning perhaps every other meeting

· Starting Monday drones will have to be registered with the FAA http://goo.gl/4SUF9Z

· JPMorgan pays $150mln in London Whale case

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Class III, Cheese, and Whey

The spot cheese session concluded with a single offer on the blocks above the market. Weakness in the powder and whey markets has spilled into the class III market. As proven by the milk production report there is plenty of milk in the Midwest. The cows have been milking well with the unseasonably high temps in the Midwest as of late. Some spot loads of milk in the Midwest were as low as $4 under class III last week. Most of this excess milk will make its way into the cheese vats, and for the time being the market is not in balance as domestic demand is not compensating for a decrease in exports.

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CWT announced yesterday they accepted requests for export assistance on 1,595mt of Cheddar, Monterey Jack, and Gouda cheese to various markets for the Jan-July 2016 period.

We expect class III, cheese and whey to open mixed, firm in the nearby months while lower in the deferreds

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

0

$1.4400

UNCH

0

1

 

BARRELS

0

$1.4500

UNCH 

0

0

NFDM

GRADE A

1

$0.7600

DOWN ½

1

0

BUTTER

GRADE AA

8

$2.0175

DOWN 4 1/4

1

2

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Class IV, Nonfat, and Butter Futures

The spot nonfat market dropped ½ a cent to 76 cents on 1 trade. Nonfat futures continued their grind lower as the premium on the forward curve is still rich. Coming up on the holiday break there won’t be much action as buyers are well covered for their short term needs. Demand from the bakeries is winding down seasonally as well. The question to consider is will Mexico continue buying large volumes which was spurred by low prices? Or are they sitting on some comfortable inventories at this point and will be more patient if we experience a price rally? Otherwise other key markets such as the Middle East and North Africa are in a quandary as their wallets are much thinner with their low oil revenues. 

Spot butter fell 4 ¼ cents to $2.0175 on 8 trades. Butter futures showed weakness in Q1, although going further into 2016 prices were marginally higher as buyer pick away at some coverage. Below is the current futures curve (red line) vs last year’s curve during the same period. The current curve is relatively flat going past January, but the main takeaway this time last year the market was much weaker than it is at the moment. This is true despite the spot market plummeting nearly 90 cents in the past two weeks. The butter cold storage stocks are estimated to come in at 138.5 million pounds for November up 28.8% vs 2014. Stocks have been substantially higher vs 2014 since April, although the bulls have been disregarding those facts.

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We expect NFDM to open lower with butter to open steady

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Grains

The markets finished lower led by wheat finishing 5 ½ to 7 ¾ cents lower as trade believes current weather in the southern plains and FSU will add needed moisture.  But the lack of snow cover in the FSU could add winter kill worries if temperatures start to dip.  Funds sold 4,000 wheat contracts yesterday.  Corn finished down 2 to 2 ½ cents as Brazilian corn for January delivery to China is 20 cents lower than US prices.  The price disparity will continue to make US product difficult to move.  Soybeans struggled to move away from unchanged finishing ½ to 1 ¼ cents lower.  The market is anticipating more beans coming out of Argentina but farmers seem to be waiting for the currency to stabilize before moving any of their stored crop.  All eyes are focused on South America as we will get very little domestic news until the New Year. 

We look for a firm opening in the grain complex today

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