Morning Dairy Comments, 03/03/2016

Thursday, March 03, 2016

General Market News

· Fast-food chains vow changes to meat amid “potential catastrophe”

· Dairy Forum to meet next week ahead of key EU crisis meeting

· World stocks at two-month highs as growth fears ease

· Proposed dairy farm in Wisconsin would dwarf other Darlington operations



Class III, Cheese & Dry Whey

Class III and cheese futures tapped the brakes on downward pressure following Tuesday’s debacle, finding relative traction on a mixed trade.  Futures held within a dime on either side of unchanged for the bulk of the session before firming into the green after the close of pit trade, all on relatively light volume. The market remains on bearish footing and we’re beginning to get the feeling that this may be the proverbial “calm before the storm.” The spot Blocks and Barrels have been unable to pierce upside resistance created mid-February and now look poised for a retest of the $1.40 mark in the coming sessions. A breach of that level will be psychologically damaging and likely lead to accelerated sell offs which would bring futures to fresh contract lows.

The trade will take a look at the January Dairy Products report this afternoon, with production of dairy products expected to be higher, with the largest gain seen in butter. American cheese output is expected to be up 0.3% from last year at 398.1 million pounds and 0.2% higher than the previous month. Other cheese, on a year-over-year basis is forecast to rise 2.8% to 596.98 million pounds. On a month-to-month basis, other cheese will likely decrease 4.4%. Total cheese production is anticipated to come in at 995.1 million pounds, 1.8% above 2015 levels, but 2.6% below the previous month. See chart below for full forecast breakout.

For the week ending February 27th, the National Dairy Products Sales Report saw a small gain in the block price to $1.50 on steady sales volume of 13,019,445 million pounds. The barrel price moved higher as well to 1.52 on weaker sales volume of 8,695,026 million pounds. Dry whey gained to 0.2589 on significantly lower sales volume of 6,607,968 million pounds.

April-June Class III Strip~Daily


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

Spot Session Results


















DOWN ½  







UP 1  







UP 2 ¼  




***Option Expiration yesterday responsible for large variation in Open Interest in Futures

Class IV, NFDM, Butter

Class IV futures saw mixed action yesterday with the bulk of the interest in the March contract as the market continues to languish near the lower edge of the recent trading range. Deferred contracts in September and October did get a boost on light volume, but the real action remains in the component trade.

Butter is expected to log its third straight 4%+ gain in today’s Dairy Products report, which has the potential to further weigh on prices long term, however the $2.00 level remains support here in the short run. The push higher on the spot market fueled futures well into the green, led by a limit up print in the May contract which spilled over through the bulk of 2016. It wouldn’t be shocking to see a challenge of the $2.00 mark again in cash and likely a push higher until inventory that was produced on a broad scale at levels north of that mark are moved through.  January butter production is forecast to hit 187.6 million pounds, up 4.5% from 2015 and 5.95% higher than the previous month. In January 2015, butter production decreased 2.4% versus 2014 levels.

The NFDM trade was sharply mixed yesterday as nearby contracts were pressured a bit while deferred contracts found some support, all on strong volume. The trade has remained firm as areas of baseline support have been carved out over the past month and the market now seems poised to challenge upside resistance levels which, if were muscled through, could open things up to a substantial wave higher to levels indicated by the black, dotted lines on the chart below. NFDM production is forecast to reach 149.8 million pounds, 9.1% less than a year ago but 1.9% above the previous month. January 2015’s nonfat dry milk production was 18.9% stronger than in 2014.

For the week ending February 27th, the National Dairy Products Sales Report registered a lower butter price of 2.07 on decreased sales volume of 4,146,845 million pounds. The NFDM price came in lower, at 0.7677 on decreased sales volume of 14,117,808 million pounds.

July-December NFDM Strip~Daily


We look for the butter and non-fat to open firm.


NZX Futures

Nearby WMP and SMP futures traded slightly higher on light volume (221 contracts) overnight while AMF saw weakness – down $50-$70 from March to May on light volume (eight contracts).  Butter was also steady to modestly lower on light volume. We look for more mixed trading amongst NZX contracts in the short-term.

Cumulative slaughtering’s for the 2015/16 season to date now stand at 195,223 head, 8.3% behind the 212,931 head slaughtered by the same point last season. While on the face of it, cull rates remain well behind last season, it should be kept in mind that the 2014/15 season saw exceptionally high numbers of cows slaughtered. When compared to the 2012/13 season, the pace of slaughtering for the current season is 38% ahead of the 141,634 head slaughtered by the same point of the 2013/14 season.



The grain trade remains under overall bearish pressure, however yesterday saw a bit of a pop to the upside after December corn logged a fresh contract low earlier in the week and the complex as a whole is a tad oversold at the moment. With the exception of soybean oil, which has been pummeled down to long term support levels of late, the balance of the complex closed in the green yesterday, led higher by beans and wheat. The trade is looking for strong corn export sales this morning (700-1100 tonnes) countered by weaker bean sales (200-600 tonnes), both in line with last week’s and year ago tallies. With the 2016 growing season ahead of us, it’ll be a tough sell in the short term for traders to press this thing too much lower from current levels, as bit of weather risk will remain in the market. That said, outside of fund short covering, there lacks the impetus for a rally with the enormity of the South American harvest on our doorstep. As in the past, rally attempts will likely be construed as selling opportunities for the farmer, who continues to market product whenever the market has given the chance. Taking a look at the chart below, there’s not much in the way of support for the corn market from a technical perspective as there’s quite a bit of real estate down below.

December Corn~Daily


We expect corn and wheat and soybeans to open moderately higher.


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