Morning Dairy Comments, 02/23/2016

Tuesday, February 23, 2016

General Market News

· U.S. to push for greater fiscal spending at G20 to boost global demand

· Syrian government accepts half to ‘combat operations’ in line with U.S.-Russian plan

· China reduces yuan’s reference rate by most in six weeks


Class III, Cheese & Dry Whey

Class III and cheese futures stood out as the weak link yesterday.  Corn, crude oil, the U.S. dollar, stocks, and butter - to name a few - all traded higher Monday.  Class III and cheese futures made new contract lows.  Although at first glance the spot market seems rather stable in the high $1.40’s, yesterday was the first day the block price moved lower in a month; since January 22nd to be exact.  There were no trades for spot blocks and only one for barrels at unchanged, but the offers of cheese for sale out of the gate translated into a weaker tone for futures.  That weaker fundamental tone is compounded by technical weakness as the relatively benign sideways trade of early February is giving way to fresh trading lows for many 2016 contracts. 

Trading volumes were moderately heavy yesterday as well.  1,173 class III and 1,036 cheese contracts changed hands under good broad-based selling.  Open interest rose too.  Class III Open Interest rose by 253 contracts while nearly three-quarters of yesterday’s cheese trade (770 contracts) was represented by new positions.  New contract lows on growing volume and growing open interest tends to be the trifecta for negative price action. It won’t last forever, but market bulls ought to batten down the hatches as continued weakness ought to be expected. 
Dry whey futures finished unchanged to lower yesterday as recent strength looks to be waning for the moment. We’re not bearish of dry whey per se, but price action is such that a corrective move lower looks to be unfolding now. The market can peel off a half penny here or a penny there, but seems unlikely to make new lows, which would be several cents below current levels. 

We look for Class III and cheese to open lower, whey steady


Spot Session Results











DOWN 1 ¼














UP 1







UP 2 ½




Butter and Non-Fat Futures

The butter and NFDM futures moved in concert yesterday as early session bulls were emboldened by the gains tallied during the spot sessions.  The butter futures garnered the lion’s share of price gains as 2016 contracts increased in value by between 2.000 and 5.000 cents, with the stronger gains tallied in the late spring and summer months, ahead of today’s release of the Cold Storage Report.  Buy side hedging interests should provide additional support to the market today addressing upcoming needs for the holidays in the short term and seasonal demand for the impending transition to the warmer months of summer. 

NFDM futures settled between 0.025 cents lower and 1.750 higher, with the strong price gains appearing in the second half contracts, as the market has reached the upper limits of the recent trading ranges of the past few weeks.  Technical resistance levels will appear closely above the market testing the true resolve of market bulls. 

We look for the Class IV complex to open steady.                   



The grain markets moved mostly lower yesterday with limited price declines as market participants look ahead to the USDA Ag Forum which begins Thursday.  The corn futures finished unchanged to 0.50 cents lower as fund short covering worked to support prices, credited with buying 8,000 contracts.  Export inspections were estimated at 900,000 mt as the U.S. has become the best offer for corn into SE Asia with Brazil out of the market while Argentina’s basis has risen to a level to make their corn no longer competitive.  US Ethanol Gross blending margins have fallen to -44 cents/gallon making E15+ blends unprofitable.

Soybean futures posted modest declines ranging from 1.50 to 2.25 cents lower as funds covered nearly 6,000 contracts of their short position.  Export inspections were estimated at 1.5 mmt compared to 0.98 mmt during the same week last year.  US soybean offers into China remain competitive against South America for the near term as China’s replacement soy crush margins have turned positive leading to increased interest. 

The wheat market erased overnight gains throughout the day as funds added to their short position, selling an estimated 4,000 contracts.  US weather forecasts continue to call for warm temperatures over the next 15 days which has caused concern surrounding the early break from dormancy which may lead to wheat being vulnerable as temperatures return to below freezing. 

We expect the grain markets to open higher, corn up 2-4 cents, soybeans up 4-7 cents and wheat up 1-3 cents. 

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