Morning Dairy Comments, 04/11/2016

Monday, April 11, 2016


General Market News

· Land O’ Lakes implements nationwide base plan http://goo.gl/kV7ZsT

· European stocks rise led by reports of rescue of Italian banks http://goo.gl/AbfznE

· Chinese March CPI down 0.4% m/m, PPI up 0.5% prompting speculation for additional stimulus  http://goo.gl/xcTfh3

· TransCanada has received authorization to restart the 590,000 bbd Keystone crude oil pipeline after two day shutdown http://goo.gl/zaFF1t

· 9,000 goat dairy farm proposed in Wisconsin http://goo.gl/xzAs5l

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Class III & Cheese

Class III and cheese futures remained supported to close out last week (mostly) slightly higher as the futures trade has seemingly put the spot market weakness on a “pay no mind list” here lately. Both block and barrel cheese finished the week on their lows with no recovery we’d become accustomed to later in the week. That didn’t seem to matter as the larger picture still depicts the spot market as largely range-bound. If that is the case and we’re on the lower end of the range, then logically the price of spot cheese would have to go up in keeping with the pattern. We’re not so sure this pattern will hold, however. With milk production building steam on top of fresh cheese inventory in the country, if there was a better time for the spot market to trade below $1.40 we’re not aware of it.
On the other hand, it’s hard to dispute the appearance of a market bottom on deferred (second half) futures. The market seems to want to build in a little risk premium as discussions lately turn towards what could potentially be a hot, dry summer (La Nina). Nevertheless, the current fundamentals  ought to outweigh expectations of a seasonal reduction in milk supplies 3-6 months from now. Eventually there may be a reason to take those second half prices even higher, but that reason doesn’t seem to exist today.

Taking a look at July Class III, we see what appears to be bottoming action on the daily, weekly and monthly charts. The charts can be thwarted by fundamentals, but for now we see support around the $14.00 level and would need to see the market close down in the high $13.00’s someplace before several layers of support would be questioned of failing.

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Class III mixed, cheese and dry whey to open steady to slightly higher.

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

0

$1.4200

UNCH

0

0

 

BARRELS

0

$1.4175

UNCH

1

0

NFDM

GRADE A

0

$0.6900

UNCH   

1

2

BUTTER

GRADE AA

0

$2.1200

UP 4 

1

1

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Class IV, NFDM & Butter

Once again the butter market has garnered the spotlight in the Class IV market segment as futures were driven 1.625 to a limit up 5.000 cents higher through March 2017.  The May and June 2016 contracts both settled limit higher, leading to expanded limits during today’s trading session, after a 4.00 cent increase registered in the spot session.  The resilience of the butter market has many participants looking for answers as we have currently reside in a lower demand period of the year.  Processors have been focusing on bulk butter production and inventory building ahead of summer demands.  Retail demand has slowed somewhat in the Central U.S., remained steady in the East while still strong in the West, though not enough to warrant the recent gains in the market place.  Hedging ahead of summertime needs has been present accounting for some of the recent strength in the market as a fear of repeating last year’s epic price rally has buy side interests rushing to address their needs.  The demand present during today’s spot session should drive price action while the futures should begin the day steady to slightly higher in anticipation of another spot gain. 

NFDM futures closed out last week’s trade with mixed pricing as the June through September contracts settled 0.200 to 0.800 cents lower while the fourth quarter months tallied gains of between 0.175 and 0.325 cents, leaving the remaining months unchanged.  Buy side interests have taken on a wait and see approach to addressing their needs, making purchases for immediate needs only while looking for prices to move lower as the abundance of milk available with the spring flush upon us is increasing inventories.           

Class IV futures gained between 4 and 35 cents in the May through March 2017 months on a mix of trades and higher bids on the strength of the butter value surge.  The Class IV market will look to the butter’s performance today for price direction as the NFDM remains a range bound trade.

NFDM and butter to open steady to higher, Class IV steady.

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Grains

Grains markets all moved higher Friday inspired by the strength of the soybean rally.  The May and July soybean contracts each gained 12.25 cents as oilseed exports are besting expectations, though much of the increase in demand has been directed to South America.  The U.S. Attaché to Argentina announced the projection for 2016 soybean production there, calling for a total of 54 mmt, down 3mmt from last year due to declining planted acres as a result of the shift to more profitable crops thanks to the policy changes instituted by the government.  Funds were credited with buying 5,000 contracts on the day.

Corn futures were pulled from their early session weakness late in the session to settle roughly a penny higher.  Plantings in the Corn Belt have been slowed due to wet, cool forecasts while Brazilian corn regions are currently experiencing dryness that has been impacting yields over the last two weeks.  U.S. corn exports will lose out to South America as domestic corn is overpriced into the important South East Asia destination. 

Wheat had a choppy but ultimately firm session as weather models reduced a portion of the previously expected rains for the Southern Plains Area.  Wheat contracts gained between 2.00 and 3.25 cents as funds were credited with buying 4,000 contracts.

We expect corn to open 2-5 cents lower, wheat down 4-7 cents and soybeans up 1-3 cents

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