Morning Dairy Comments, 02/12/2016

Friday, February 12, 2016


General Market News

· We can hardly believe it but the Dow is set to open higher after a 250 point decline yesterday

· The USD is higher as is crude while gold is lower as the market is likely looking to take profits on the sizeable moves seen earlier in the week

· German GDP up 0.3% as exports fall

· Greece slides back into recession as protests pick up in Athens

· Japanese stocks post single biggest weekly loss since 2008

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Class III, Cheese & Dry Whey

Class III and cheese values closed mixed yesterday.  Although, futures were mixed most months saw gains with the exception of June through August.

Commercial Disappearance reflected milk use in December was higher although cheese was mixed. American cheese demand in December was 1.4% below a year ago, but up 1.3% versus previous-month levels, according to USDA’s latest Livestock, Dairy, and Poultry Outlook tables. Demand for the “other” cheese category increased 3.4% from 2014 levels, but was 2.2% lower than month-earlier levels. Total cheese use gained 1.5% from a year ago, but was 0.9% below the previous month. For 2015, American cheese use was 1.2% higher, and other than American cheese use is up 2.3%, which puts total cheese use 1.9% higher.

While milk use was higher in December, the National Restaurant Association’s Restaurant Performance Index fell sharply in December. The RPI, according to the NRA stood at 99.7 in December, down 1.6 percent from November’s levels.  This key indicator, may indicate that the industry may be in a state of contraction, at least temporarily, based on customer traffic, expenditures, labor, and same store sales.

Overall, the sideways momentum should be followed by some further price decay.  Whispers of $12.50 milk in May have made the rounds today.  While anything is possible, there is nearly 2 dollars between current levels and that level. That said, relatively speaking milk prices have yet to fall to that point despite the overwhelming bearish tone, however, only time will tell.

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We look for Class III and cheese to open higher, whey mixed

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

5

$1.4900

UNCH

5

0

 

BARRELS

0

$1.4800

UP 1 ½

1

0

NFDM

GRADE A

2

$0.7600

UP 1

0

3

BUTTER

GRADE AA

15

$2.1300

UP ½

1

0

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Class IV, Nonfat, and Butter Futures

Butter values tumbled yesterday, nearly 2.5 cents in the deferred months in spite of a move higher in spot.  Spot saw a healthy volume trade, with 15 loads trading before the session ended.  So, should we expect some further weakness to trickle in this market?  Perhaps, but as we know butter has been the most resilient of dairy products all year.  Regardless, the April through June pack in butter is now at its lowest level since mid-January.

Commercial Disappearance noted nonfat dry milk use gained 1.5% in December, but butter demand was 9.1% lower, compared with previous-year levels. On a month-to-month basis, commercial disappearance of butter decreased 23.7%, while nonfat dry milk use gained 31.5%. In 2015, nonfat dry milk use was up 11.3%, but butter use was 2.4% lower. NFDM prices continued their recent rally yesterday steady to 2.00 cents higher through 2015 contracts. Weekly DMN interestingly was steady to slightly lower but there seems to be a little bullishness at the moment for NFDM. We don’t expect to see spot trade above 80 cents which should limit further gains on futures but technical momentum is to the upside at the moment.

April to June NFDM pack average:

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We look for the butter to open firm, NFDM mixed but mostly lower and class IV mostly lower.

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Grains

Grain prices were mixed yesterday.  Beans were up nearly 11 cents in May as rumors of a hedge fund blowout were in the marketplace. But corn and wheat were down by ¾ of a cent and a penny respectively despite the fact that the USD continues to slide. Export sales also likely played a part in the price movements as well with corn very posting a very disappointing sales total of 13.6 mln bushels vs. estimates for 31.5 to 43.3 million bushels soybeans were on the upper end of estimates at 22.1 mln bushels vs. estimates for 11.0 to 22.0 while wheat was right in line at 11.0 mln bushels vs. 5.5 to 12.9 mln expected.

We expect grains to open mixed within a few cents of unchanged in either direction.

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