Morning Dairy Comments, 03/11/2016

Friday, March 11, 2016

General Market News

· Goldman doesn’t buy ECB rate hint and sticks to its euro/dollar parity call

· IEA sees first signs of an oil bottom

· European stocks leap as banks get an ECB boost

· Dow futures rise more than 100 points as oil rallies

· This is how the global dairy glut is flowing through to major Australian banks



Class III, Cheese & Dry Whey

Class III and cheese futures fell modestly under the weight of their own supply yesterday as chatter around a lack of storage in the upper Midwest seems to make its way into more conversations this week. We’ve got milk and we’ve got cheese and about the only thing that seems not to fit into a bearish story is the resilience of the spot market, which saw the price of barrels rise by ½ cents yesterday to finish at $1.4700. Meanwhile block cheese rests quietly at $1.51 – a penny off the year’s high.

Domestic demand for cheese overall, but also particularly fresh cheese, has been the main reason cited for the remarkable stability of spot cheese pricing this year (and really last year too). And there is no doubt about it – domestic demand for cheese has been the bright spot. But the USDA delivered some interesting demand information yesterday.
According to the commercial disappearance tables in the Livestock, Dairy and Poultry Outlook released yesterday afternoon, American cheese demand declined by 0.4% from January 2015 and fell 2.95% from previous-month levels. Total cheese demand, however, had the strongest showing for a January on record gaining 3.8% from a year ago at over a billion lbs., but fell 6.2% from December.
To be sure, these numbers are still a rather strong showing for demand. But imports also remained largely strong in January. American cheese imports are up 51.4% from last year and Total cheese imports are up 65%. Total cheese imports did fall from 14.3% from last month, but American cheese imports were still 21.7% above December.


While imports look burdensome now, the market has already adjusted for that. What we’re concerned with what the future for cheese demand looks like. If yesterday’s US dollar trading action is any indication, 2016 may be marked by a reduction of imported cheese as the dollar looks poised to have a longer-term correction within its bull market.
From our European office report, Argentinian milk collections for January have fallen to their lowest since 2010 recent data has shown as pressure on international dairy commodity prices has taken its toll on production for one of the top five dairy exporters in the world. Collections for January totaled 788kt, down 5.5% on January 2015 and 7.6% behind the three year average for January. Data released earlier this month showed sharp declines in January milk production for Australia while New Zealand and US production were almost flat; these reductions look set to be more than offset by sharply higher EU production in January. Complete EU production data for January is expected to be available next week.

For the week ending February 27, dairy cow slaughter under federal inspection was up 7.02%, at 62,500 head, compared with the same period the previous year. Year-to-date slaughter levels are 0.3% higher than 2015 levels, with 552,500 head slaughtered.

We look for Class III and Cheese to open mixed, steady call for Dry Whey.

Spot Session Results


















UP ½ 







UP ½ 







UP 2 ¼ 




NFDM & Butter

Butter futures caught a bid yesterday rallying as much as 5 cents (limit up) intraday. The price of spot butter pushed up 2.25 cents on 4 trades spurring on and already higher butter futures trade as the $2.00 level for futures is a formidable area of psychological support for now. 

NFDM futures also bounced yesterday though not by as much and on less volume. Only 154 contracts traded hands (167 for butter) yesterday versus over 500 the day prior when prices saw weakness. In other words, when the trade lets NFDM breath, it goes up. Spot was up ½ cent on a lone bid to 75.00 cents.  The Dairy Market News Western Mostly NFDM price was down 0.50 cents from the previous week at 74.50 cents per pound.

Nonfat dry milk commercial disappearance fell by 30.6% in January, but butter demand was 1.2% higher, compared with previous-year levels. On a month-to-month basis, commercial use of butter decreased 8.9%, while nonfat dry milk use lost 21.6%.

We look for Butter and NFDM to open firm.


Corn and soybeans finished modestly higher yesterday as the USDA supply demand report of earlier this week came and went without raising the hair on the back of anyone’s neck. Although slightly lower than the average trade guess for corn and wheat and right on the money for soybeans, stocks were really right in line with expectations. The USDA even left exports alone likely waiting for fresh information from Central Bankers before making any adjustments. These are the things that make for quiet markets. No jolt to the system this week.

Gasoline demand reported for the week remains strong at 9.5% higher than the same time last year. This is creating stronger ethanol demand. In the EIA’s weekly update, ethanol production was reported at 998,000 million barrels per day. This puts corn for ethanol ahead of a pace needed to meet USDA targets. For soybean and meal prices, a better currency picture after a strong rise in Brazil’s currency, the Real. Meanwhile most of the speculative traders are short and we still have a crop to put in the ground. So while it’s tough to be bullish, don’t get lulled to sleep. Our opinion is that these markets have a better chance of rising than falling over the next 60 days.

We’ve heard growing discussions of drought with a lack of Midwest snow cover and unseasonably warm temperatures. Below is the Drought Monitor from March 6, 2012 (left) compared to the Drought Monitor from March 8, 2016. There are more differences than similarities in our estimation, so 2012 may not be a good guidepost. But weather will throw its share of worries at the markets.


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