Morning Dairy Comments, 01/05/2016

Tuesday, January 05, 2016


 

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General Market News

· Dow closes down triple digits, worst opening day in 8 years

· The People’s Bank of China injected nearly $20 billion into its money markets to shore up stocks, yuan http://goo.gl/lwqriZ

· Euro-area inflation weaker than expected in December with consumer prices up 0.2% http://goo.gl/vgmN5W

· TPP members to sign deal in February verifying wording of deal http://goo.gl/ttJl74

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Class III, and Cheese

Market participants tried to extend last week’s gains early in yesterday’s session pushing class III up 20+ cents before spot.  A mixed spot session disappointed and further upside momentum was thwarted by technically induced selling.  1st quarter packs in both cheese and class III traded above the 20 day moving average before spot and finished below after spot. (See charts below)

Most of the water cooler talk yesterday surrounded Texas and New Mexico and the damage Goliath did.  We will get a clearer understanding of the impact as they assess the milk cow/production losses in the coming weeks as a wide range of herd loss estimates have been circulated. 

1st quarter class III

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1st quarter Cheese

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El Nino is going to continue to push moisture towards these regions and the stack of storms expected to hit California this week could bring heavy rains and much needed snow pack.  El Nino is projected to double California’s average annual rainfall this year.  But these heavy storms will keep weather concerns in the forefront.

We saw strong production schedules last week as cheesemakers ran full steam as milk is readily available.  Whey continues to be pressured falling just over a penny in the March contract. 

We expect Class III and cheese to open mixed, and Dry Whey to open steady to slightly higher.

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

1

$1.5125

UP ½

0

0

 

BARRELS

0

$1.5200

DOWN 1

0

1

NFDM

GRADE A

1

$0.7575

UP ¼

1

5

BUTTER

GRADE AA

10

$2.0400

DOWN 4

1

0

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Class IV, Nonfat, and Butter Futures

Butter held all the excitement yesterday as the February contract started limit up and finished limit down on 31 contracts.  As mentioned in the Class III section above we saw market participants unwilling to extend recent gains as spot butter dropped 4 cents.

Nonfat traded mixed as market participants prepared for the results of today’s GDT auction going on now. 

The first GDT auction of 2016 will finish this morning with minor adjustments in volumes expected.  WMP volume is expected to be up 6.8% with an increase in contract 1 (2500 tonnes) and reductions in contract 2 (530 tonnes) and contract 3 (1100 tonnes).  SMP volume is down from the last auction but level with forecasts.

NFDM to open lower Butter and Class IV steady.

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Grains

The story yesterday in the grains was the 7% decrease in the Shanghai index.  We have 3 main issues that pushed the Chinese stock market lower.  Their December PMI had the 10th straight month of contraction; insider trading restrictions on selling stock is being lifted on Friday therefore many speculated that those able to sell their positions in those restricted stocks did so ahead of the insiders and the new circuit breaker halted trading for the day after the 7% drop.

Grains finished lower because of this.  Corn finished mostly 7 cents lower as not only China but inspections continue to weigh on the market.  Inspections are running 22% behind last year and 16% behind USDA estimates.  Soybeans fell close to 9 cents again on China but also because of beneficial rains in South America.  The five day forecast has 65% of the soybean belt receiving rains. 

Wheat finished 12 cents lower on sympathy from corn/soybeans but also because snow cover helped to decrease expected FSU winterkill by half. 

The strong US dollar will continue to pressure prices as the US is essentially out of the grain export business.

We look for a steady to higher opening in the grain complex today. 

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