Morning Dairy Comments, 03/21/2016

Monday, March 21, 2016


General Market News

· Idaho would be a top candidate for Materne dairy product facility http://goo.gl/jppnfP

· North Korea fires short-range projectiles, South Korea says http://goo.gl/ACsVzt

· Oil prices under mild pressure after US rig count rises for fir time in 13 weeks

· Monsanto said to explore crop chemicals deals with BASF and Bayer

· Domino’s is trailing an autonomous pizza delivery robot http://goo.gl/EOvJ5w

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Class III, Cheese & Dry Whey

The spot cheese market on Friday came out of the gates strong as barrels were bid up 8 cents to $1.50 on 3 trades while the blocks trickled ¼ cent higher to $1.49 on 1 trade. Class III and cheese futures were bid up strongly although the volumes did not show much enthusiasm with 1,059 Class III and 360 Cheese trades in the books.

Outside of the dairy world the bulls have made their presence known as most commodities are seeing bids as money managers cover short positions and add to longs as the famed  US Dollar has fallen down to 95 from its highs of around 100. Also adding support to the market is oil back in the low $40’s which is not pretty but much better than the mid $20’s!

Friday’s February Milk Production report confirmed the trends with California production down 2.3% and Wisconsin up 5% as the 23 state total was up 1% above expectations. The Midwest is pumping out milk and was probably aided by this year’s mild winter. Although there are some reports of milk being skimmed and dumped in the Midwest and some spot loads are going for $1.50-$3.00 under Class III.

The US cheese markets is still holding significant prices to the EU prices where Cheddar in in the low $1’s and Gouda is in the low 90’s range. Domestic food service demand has been firm as well from pizza makers. Retail demand has been good although it’s reported some larger chains are holding off as they are uncertain on market direction. From the restaurant perspective it seems there is a spur of promotional activity underway. Domino’s ran a 50% off online ordering campaign last week, as Taco Bell recently announced their new breakfast value menu. McDonald’s has expanded their value meal menu in addition to their successful all day breakfast menu. Wendy’s and Burger king have also expanded their value meal options. We don’t see these efforts being scaled back anytime soon as restaurant traffic remains strong and commodity costs are by and large lower.

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We look for Class III and Cheese to open steady to lower and dry whey to open steady

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

1

$1.4900

UP 1/4

0

1

 

BARRELS

3

$1.5000

UP 8

1

1

NFDM

GRADE A

0

$0.7300

UP 1/4

1

6

BUTTER

GRADE AA

0

$1.9500

UP 1

1

1

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NFDM & Butter

The NFDM spot market edged up a ¼ penny higher to 73 cents on no trades and one bid although there were 6 offers that drew a line in the sand. Futures were slightly higher although the bias is to sell rallies as the EU’s intervention program will likely keep the market contained in a narrow to lower range. AMS prices virtually unchanged from the prior week at $0.7623 on 16.9 mil pounds, down from the 25.7 million pounds from week before. CWAP jumped nearly 3 cents higher last week to $0.7885 on 7.5 mil pounds, down about 5 mil pounds from prior week.

Butter continues to defy fundamentals as spot was bid up 1 cent to $1.95 on no trades but a higher offer. This time of year the cream and butter markets should be seasonally weaker and that came true with prices substantially off January’s rally prices. Although if the market was truly that bearish you would think we’d already be in the $1.70’s. Buyers are still wary of 2 years in a row with strong butter prices. Will they risk the 3rd? The 2016 butter futures have help much high than typical years and possibly many buyers have already budgeted $2 prices. Therefore we see good support in the $1.90’s for now.

We look for Butter and NFDM to open mostly mixed/lower and Class IV to open lower.

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Grains

The grains finished last week on a quietly mixed note unable to see any strong gains heading into the weekend. This morning they’re opening modestly lower. There has been little to stimulate aggressive short-covering lately. We anticipate speculative short-covering will be a big driver if and when prices continue to rise. A falling US dollar and a rising Brazilian real should help to stimulate export bids for US grains. Outside of currency considerations, summer weather following El Nino is gaining some airtime.
A well written article published recently by the folks at the University of Illinois FarmDoc stated, “At the current pace of transition, neutral conditions could exist as early as June and La Niña as early as July. This bolsters our previous conclusion that downside yield risks for corn and soybeans in 2016 are elevated because of the strong ongoing El Niño episode. It also suggests one should keep a close eye on whether a transition to La Niña occurs by summer”.

We look for Corn to open flat to 1 lower, Soybeans to open 1-3 lower and Wheat to open 3-4 higher.

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