Morning Dairy Comments, 12/29/2015

Tuesday, December 29, 2015

General Market News

· US stocks closed lower yesterday weighed by energy

· Saudi Arabia cuts spending and raises local fuel prices

· Natural gas snaps back on cold weather outlook

· Facing TPP dairy deluge, Vietnam milk firms shift strategy to survive

· Savoie region of France using Whey to provide power


Class III, Cheese, and Whey

Class III futures had a strong rally yesterday indicative of a short covering, bear market rally. Overall Open Interest rose for class III and cheese yesterday with the exception of January and March contracts (and a few deferred months), which saw Open Interest fall.  The rally faded late in the day finishing 20 cents off its highs in the 1st half of 2016.  Technically the sharp rally off of last week’s lows in heavy volume (1762 contracts) may lead to additional momentum. The fundamental picture is still negative for price action, however, so these bear bounces can come on ferociously over a few days but tend to fade just as quickly.
1st half 2016 class III settled yesterday at 14.36.  First resistance will be right around 14.50 with the 20 day moving average at 14.66 could act as a pivot point.   

1st half 2016 Class III

Cheese finished strongly also on good volume finishing up 2 ½ cents in the 1st half pack as short covering helped push all cheese related markets.  1st half 2016 Whey finished up just over 1/3rd of a cent with the bulk of the volume in the 2nd quarter.  Fundamentally milk is available for cheese manufacturing and distressed milk is reported $6 to $7 under class in the Midwest.  Not unusual for this time of year.  But building dry whey inventories and increased cheese manufacturing over the holidays would tend to cap any rallies we could see. 

Caution is warranted as holiday trade is both volatile and not always indicative of larger overall market trends.

Commercial Disappearance Supply and Demand tables for Total cheese showed a 15.1% build over last year.  Imports are up 18.8% and production is up 1.5% YoY.


We expect Class III and Cheese to open mostly lower and Dry Whey to open mixed.

Spot Session Results











UP 2 ½







UP 4







DOWN 1 ¼











Class IV, Nonfat, and Butter Futures

The spot butter market dropped 2 cents yesterday to $2.01 ¾ with 10 trades. Spot activity seems to be picking up with relatively strong volumes (see chart below). The front month butter futures showed some softness although going further out into 2016 futures were being bid marginally higher. Traditionally coming off of the holiday demand season prices begin to soften, although we are still at relatively high prices. Once again butter manufacturers are faced with the risk of building inventories at relatively high prices. Most of the emphasis now will be on foodservice and bulk butter as the retail butter demand winds down. Commercial disappearance for butter in October was up 1.5% to 159.3 million pounds.

Spot nonfat was down 1 ¼ cents to 74 ½ cents on 1 trade. The nonfat futures market was mixed on steady volumes. The commercial disappearance in the month of October for NFDM was at 146.7 mil pounds, up 24.1% over LY and illustrated below. The strong export sales to Mexico have been one factor keep the commercial disappearance at elevated levels. Manufacturers have diligently working at keeping NFDM stocks at manageable levels and stocks are now at 183.6 mil pounds as of October, down 1.5% from last year. Lately there has been a shift towards more MPC production at the cost of less NFDM/SMP production. The last few months have also seen more condensed skim milk production.

NFDM, Butter and Class IV are all called to open steady/mixed this morning.




Corn finished lower making new contract lows in 15/16 crop year contracts.  Funds pressed their already strong short position yesterday selling an estimated 5000 contracts bringing the net fund position to -91,818.  Fundamentally there isn’t any news to suggest a change in sentiment.

Soybeans finished 10 ¼ to 11 ¼ cents lower as river disruptions because of weather was discounted as SA weather over the weekend had Mato Grosso receive much needed moisture  The extended forecast has also become much wetter.  Inspections are still running 12% behind last year and 5% behind the pace needed to hit USDA estimates expect US news to stay on the back burner as everyone continues to watch South American weather.

Wheat followed the other grains lower as little to no news came over the wires.  Export inspections are running 13% behind last year and 9% below the pace needed to hit USDA estimates.

Corn is called to open mixed while Soybeans and Wheat are called 4-7 cents higher. 

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