Morning Dairy Comments, 01/21/2016

Thursday, January 21, 2016


General Market News

· Jobless claims jump again to 7-month high

· The ECB leaves interest rates unchanged as Euro area inflation weaker than expected

· Russian Ruble fell more than 5% overnight to a new record low

· Southwest Blizzard Update: Farmers Paid $4.5 Million for Lost Milk Production http://bit.ly/1nA3rxE

· December average retail choice beef price was down 24 cents/lb (4%) vs the prior month, the largest month-to-month decline since at least 1970

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Class III, Cheese & Dry Whey 

Class III and cheese futures finished modestly lower Wednesday after Tuesday’s sharp declines. Spot cheese fell slightly, but did not send futures into a sharp sell off as the traded favored consolidation of recent price losses. Class III volume slowed registering just south of 1,000 contracts changing hands yesterday.  Cheese futures were slightly busier on a relative basis with 710 contracts trading.  

We continue to hear that fresh cheese availability in the county is ample, but that domestic demand is still holding in there. Milk supplies also seem to be adequate in many cheese producing regions of the country.  We’ve heard of slight upticks in milk-per-cow out of places like Idaho recently. On the flip side, we suspect stress on milk logistics in New Mexico and Texas is still an issue. The storm that ravaged open lot dairies down there nearly a month ago now will have reverberating impacts on that milk supply down there for some time to come. Overall, however, U.S. cheese plants seem to have little difficulty getting the milk they need today.

The futures market looks poised for more weakness in the short-term. However, the USDA will deliver a double-whammy of data with the release of both December Milk Production and Cold Storage reports after the market close Friday. We’re expecting a ho-hum December milk production increase of 0.4% in Friday’s report.

As for cold storage, we don’t expect and surprise declines to inventory.  We think December American cheese stocks gained 0.3% from last month and rise 11.6% from 2014 levels. December American stocks have been above previous-month inventories in 8 of the past 10 years.  At 700.3 million pounds, stocks would be 75.7 million pounds above their five-year average.  We will have a full report out on Friday afternoon.

Data released by Dairy Australia overnight showed Australian milk collections for November totalled 1.03 million tonnes, a 3.4% reduction on November 2014 and a 0.7% reduction on the three year average for November. Cumulative collections for 2015 now total 9.09 million tonnes. While the cumulative volume for the calendar year to November remains 3.0% ahead of the same point last season, this year’s lead on last year’s cumulative volume has steadily reduced month by month from the 6.5% difference observed last March.

We expect Class III and cheese to open steady, slightly higher and dry whey to open lower.

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

1

$1.4800

DOWN 2  

0

1

 

BARRELS

0

$1.4950

DOWN ¼  

0

1

NFDM

GRADE A

1

$0.7425

UNCH

1

0

BUTTER

GRADE AA

0

$2.1325

UNCH

1

1

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Class IV, Butter & NFDM

The butter market stabilized the recent collapse as buy side hedging interests emerged yesterday.  To be sure, prices still finished sharply lower yesterday, but the sub-$2.20 level has stirred some buyer interest.  The tightness of butter supplies for the near term, whether perceived or actual, should continue to draw buy side interest to the market while rebuffing efforts to push the butter futures to the $2.00 ahead of the upcoming Cold Storage Report this Friday.  We expect the butter held in storage for the month of December to have increased by 21.5% year over year to 127.2 million pounds, while falling 4.1% lower from November.

Selling pressures in the NFDM market began early Wednesday with selling efforts more noticeable in the deferred contracts as market participants seek out the price premiums allotted in the forward curve.  With a steady spot session the nearby contracts remained relatively stable, holding in the upper 70 cent range. CWAP gained 0.2% to $0.8054 on 5.8 million lbs. last week.

We expect Class IV, Butter and NFDM to open mixed.

NZX Futures

NZX futures traded lower again overnight. A total of 830 lots/tonnes were traded across WMP and SMP, all settling lower.

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Grains

The grain markets moved mostly lower yesterday as the soybean and wheat contracts were pressured with additional fund selling while the corn managed minimal gains. The corn market was bolstered by funds covering an estimated 4,000 short positions yet look to remain bearish overall as U.S. corn is overpriced compared to other globally sourced corn, diminishing export prospects thanks in part to the strength of the U.S. Dollar.  The soybean market faces stiff upside resistance generated by a series of major moving averages while South American soybeans are priced lower than U.S. soybeans, attracting a lion’s share of export interests.  The wheat market faces similar export competition from Russia and France as the other grain markets while additional snow coverage in Central Russia will aid the region’s winter wheat crop.
Early call is for modest strength for Corn, Soybeans and Wheat this morning in line with the overnight trade.


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