Morning Dairy Comments, 03/18/2016

Friday, March 18, 2016

General Market News



Class III, Cheese & Dry Whey

Class III and cheese futures got a reprieve from this week’s price weakness yesterday as nearby contracts found supportive bidding action ahead of the spot session. Open interest didn’t decrease dramatically, but we think the rally was largely driven by speculative short-covering – particularly for class III. Also interesting to note was that of the 935 class III contracts that traded, 854 of them were in the months of March-June and the April-May spread has seen an increase in trading activity possibly illuminating some rolling of positions from April to May, which we’d expect is speculative in nature. Only 253 cheese contracts changed hands.

Ironically, spot barrels dropped a penny yesterday, which stemmed the buy side activity for a few moments following spot but failed to push futures into negative territory. Part of that may be because when the single barrel load was offered at $1.42 (down a penny) there were several buyers who tried to buy it and missed out leaving only one trade and no additional offer. So, on the surface, it seems there is more buy side than sell side for barrels at $1.42.  We shall see if that holds true today. We hear there are more fresh barrels out there that could come to the exchange than blocks this week, so the spread of 6.75 cents seems reasonable to us today.

We get the February USDA Milk Production report after the markets close this afternoon. We’re looking for an increase of 0.4% for both US and 23-state on increases in both cow numbers and milk-per-cow. 0.4%, if realized, is likely status quo and uneventful for the market at present particularly since the discussion this week seems focused on European production. The latest data released by Eurostat showed German and French milk production in January increased significantly compared with last year. German collections totaled 2.76 million tonnes, an increase of 5.6% year on year, and 6.3% ahead of the three year average for January. French collections for January totaled 2.24 million tonnes, which represents a year on year increase of 1.6%, and a 2.5% increase on the three year average.

A picture says a thousand words. Drought conditions in the U.S. are better than last year, but this year’s El Nino hasn’t solved the problem in California. I suppose that’s not news as even the most optimistic among us said that it would take several years of good rainy seasons and snowpack to reverse the situation in California. Still it’s worth monitoring in times of moderate temperatures and surplus milk as we have today because we can easily overlook otherwise serious situations such as drought in California and what that might mean for milk production nationally once the mercury starts to rise again.


For the week ending March 5, dairy cow slaughter under federal inspection was down 1.5%, at 59,100 head, compared with the same period the previous year. Year-to-date slaughter levels are 0.2% higher than 2015 levels, with 611,600 head slaughtered.

The Central Mostly Dry Whey powder price was unchanged from the previous week at 24.25 cents, while the Western Mostly price was steady at 25.00 cents.

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

Spot Session Results




































NFDM & Butter

A stable spot butter market helped boost futures yesterday in what appeared to be mostly a consolidation of the market after making new lows for the move on Wednesday. 122 contracts traded and open interest rose by 7 contracts, so there wasn’t a clear driver. Light short-covering likely mixed with continued commercial hedger buy side interest, which continues to be a key feature around the low-$2.00 level through Q4 contracts.

There seems to be no shortage of bearish sentiment around butter lately but actions speak louder than words. We’ve seen strong inventory growth so far this year and we’re on pace to quell even the most bullish among us, but the market is still on edge. Sub-200 million lbs. and $1.90ish can make sense today. If we continue to see the kind of build we had in January over the next several months, butter will likely continue to move lower.  But we’re not there yet – if spot dips into the $1.80’s soon we think that is about as low as it will go for now.

NFDM futures finished lower on moderate volume and declining open interest, which tells us again that the driving force seems to be largely long-liquidation. Meanwhile spot NFDM traded 8 loads down to $1.72 – a low price print for the Month of March. We expect a continued two-sided trade in the mid-70 cent range. The Dairy Market News Western Mostly NFDM price was down 0.25 cents from the previous week at 74.25 cents per pound.

We look for Butter and Class IV to open steady/higher and NFDM to open mixed.


Corn and soybeans both traded firm for most of Thursday before retreating by the end of the day. May soybeans eclipsed the $9.00 level for the first time since Christmas. Farmers are selling little rallies and have a lot more to sell. Spec funds are short corn and have yet to begin covering in earnest. The grain complex as a whole got a boost from a precipitous decline in the U.S. dollar yesterday. The Dollar Index fell after Fed Chairman Yellen’s testimony indicated economists were too optimistic on U.S. growth. Yellen’s statements put interest rate hikes on a lower rate increase path for 2016-2018.  Also buoying support was the bean oil market was sharply higher as the market is reacting to tightness in the global vegetable oil family (palm oil, etc).



We look for Corn and Wheat to open slightly lower while Soybeans are called 1-3 higher. . 

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