Morning Dairy Comments, 2/18/2016

Thursday, February 18, 2016

General Market News

· Apple defies order by federal judge to design a version of their software to bypass certain security measures.

· Oil production freeze deal is questionable

· Ted Cruz tops Trump in latest NBC/WSJ poll

· Japanese exports fall for 4th straight month as China continues to weigh on their export markets

· Mexican Peso logs its best daily gain since 2008 on surprise rate hike.



Class III, Cheese & Dry Whey

We continue to see class III and cheese futures markets grind lower amid fresh selling and technical weakness inspired by new contract lows established this week.  Even a steady to slightly higher spot cheese market was unable to inspire a turn for futures as participants don’t are growing leery of spot stability.  That said, we hear that supplies of fresh block cheese is not overwhelming to the market at this time. Trading volumes were lighter than that of Tuesday but Open Interest continues to climb, particularly in the April-December contracts as fresh selling whittles away at the forward premium.

Later this week we get milk production and for the 23 largest producing states we expect to see an increase of 1.9% over last month and .8% over January 2015. Our estimates include a small gain in cow numbers and an increase in milk per cow (see forecast below). We think a number like this is largely expected and likely worked into prices.
Speaking of milk production, our colleagues in FCStone’s Dublin office had this to say about recent UK milk production figures:
“Data published by AHDB (Agriculture and Horticulture Development Board) last week showed UK milk collections in January totaled 1.26 million tonnes, up 2.2% on January 2015 and 6.6% ahead of the three year average for January. To put some context on this figure, January 2015 collections were 1.2% ahead of January 2014 as UK production gained momentum ahead of the abolition of EU quota. It should also be kept in mind that UK production was not limited by super levy restrictions for the first quarter of last year. UK collection for the calendar 2015 subsequently went to total 15.19 million tonnes, up 2.5% on the previous calendar year. If the production for the first month of 2016 is a signal for what's to come for the remainder the 2016 season, we are likely to see another year of exceptionally high production.”

We look for a mixed opening for Class III, Cheese and Dry Whey.

Spot Session Results


















UP 1







DOWN 1 ¼ 











Butter and Non-Fat Futures

The butter market continued to decline Wednesday as selling continued amid anecdotal chatter that dialed up thoughts of more butter to come to the exchange in the coming days.  268 contracts changed hands as prices pushed to levels not seen since early January. Willing spot sellers are here this week, but we expect them to meet more buy side interest now that we’re encroaching on a low-$2.00 price. From a technical perspective, prices are moving into an area we’ve seen some level of trading congestion back in November and December (take the April chart below as an example).  We’d expect this to underpin futures prices in the short-term. 

April Butter – Weekly


Cold storage next week will be interesting as the weekly stocks suggest a pretty strong build in butter stocks.
Nonfat succumbed to the weight of the market and finished lower with June being the weakest.  We continue to see price erosion.  We started this week with a lower GDT (4th straight decline).  CWAP dropped .4% on the week and the USDA-LDP projected NFDM’s expected midpoint price dropped 10.75% over last year. 

We look for the Butter, NFDM and Class IV to open steady/slightly higher.


Short covering by the funds off of recent lows seems to be the continued story.  July wheat finished 6 ¼ cents higher, corn 3 ½ cents higher and soybeans 2 ¼ cents higher. We have heard some grumblings of ocean temperature patterns that lean closer to the drought of 1983 and away from the lush 1998 El Nino year.   Or it could be as simple as:  Bearish news is in; prices hit contract lows this year and profits are being booked.  The news cycle will continue to be very quiet until March which starts with production on the 9th and culminating with the market moving prospective plantings report on the 31st

We look for corn and soybeans to open slightly lower.

Unless otherwise noted, the posts on this blog should be construed as market commentary, merely observing economic, political and/or market conditions, and not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. or its subsidiaries. INTL FCStone Inc. is not responsible for any trading decisions taken by persons viewing this material. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. or its subsidiaries. Reproduction without authorization is prohibited. All rights reserved.

Market Intelligence Free Trial