Morning Dairy Comments, 04/20/2016

Wednesday, April 20, 2016

General Market News

· ***Milk production today at 2 PM Chicago time***

· Our general markets screen had the look of old as the USD was down ~500 points and most ‘things’ were higher yesterday due to the disappointing housing starts report

· Crude rode the wave to a 3.25% gain back above the $41 mark

· IBM suffers largest one day decline in nearly two years as gross margin surprisingly dropped causing a near 60 point decline in the DJIA

· NZ Dollar hits 10 month high following GDT gains

· Australian cattle giant S Kidman & Co to be sold to Chinese investors



Class III & Cheese

What looked to be a lamb of a trading day turned into a bit of a lion late in the session yesterday. There was little sign of what was to come but around 12:40 buying popped up in the Q3 months and it was followed with buying in the Q4 contracts as well. There was next to nothing traded from July to December prior to that but by the end of the session most of those months had 30 trades taking place. Nearby months saw little price change, but July to June of 2017 were 6 to 14 higher on the day and traded to larger gains than that shortly after the 1:10 settlement. This certainly has the look of end user hedging as the Jan to Dec cheese pack for 2017 traded 5 times yesterday as well.  Perhaps this is some outside equity flow as well however given that the USD has fallen while crude oil as well as feed prices have spiked from their lows recently. The question becomes how long can this last? Below we include the USD chart. While fundamentally it still seems as though the US is easily leading global economies we aren’t without our issues. Technically major long term support is just below and the next few sessions look as though they could be key to medium term direction.

Daily USD continuation chart:


Whey futures were quiet yesterday with only two trades taking place, though deferred futures did see up to nearly a penny price gains as they likely were following along with the strength seen in class III. Milk production is released this afternoon, below we include our estimates calling for a 0.8% increase year over year for all US milk production. It will be interesting to see how the market reacts given the recent bounce.

We look for class III and cheese to open mixed, dry whey steady.

Spot Session Results

























UP ½   











Class IV, NFDM & Butter

The GDT price results made today’s session an interesting one for NFDM but I don’t know that we have any clearer short term picture given what transpired. Prior to the GDT results being released futures were steady to over a penny higher and shortly after the GDT results came out, included below, futures were steady to a penny lower. This back and forth price action led to relatively strong volume with nearly 300 trades taking place but with settlements ranging from -0.875 to +0.100 through the 2016 contracts any clarity for price direction seems unclear. The deferred contracts from Jan through March were up 0.825 to 1.100 further muddying the waters. Trying to balance out the short term and long term fundamentals is a tall order at the moment with many nervous about prices rallying sharply from long term lows, but not yet seeing the signs in the short term.

While there was lots of activity on NFDM butter on the other hand was relatively quiet with less than 50 trades taking place prices were mixed from -0.275 to +0.300 at the moment the market seems gun shy about all the recent volatility and so we sit. Milk production this afternoon and then cold storage on Friday may give us a little more to go off of.

Class IV futures were surprisingly steady to 20 higher yesterday as a total of 27 trades took place, very good for what this market has been of late. Most of the action and price movement came in the second half of 2016 and early 2017 contracts. Time will tell if these gains can hold given the mixed market for the products currently.

We look for NFDM to open mixed and butter steady. 



The wild ride continues for the grains. Soybeans opened the session by running through stops in route to trading nearly 25 higher and by mid-day it looked as if the rally was losing steam as prices traced back to just single digit gains. But the soybean market just acts like the energizer bunny amid tight international veg oil markets and concerns over Argentina harvest delays back to the daily highs we went. By the close prices were up 31.25 cents to $9.8550 in May and very near the $10 mark for July and November. Shorts seemingly are just getting out of the way and that has continued to drive the buy side interest while corn on the other hand continues to see heavy farmer selling on rallies and you could clearly see that in the spreads yesterday. May corn was up 3.50 cents while December corn was up 6.25 cents at $3.9650. Sometimes the margin clerk can get in the way of fundamentals and for soybeans at least this seems to be the case. While there is some tightness for soybeans and to be certain and the margin for error is shrinking, there could be a lot of acreage switching given how sharply beans have rallied relative to corn. Wheat prices rallied 13.50 cents yesterday and if one thing in the grain markets is overpriced it is likely wheat as global S & D’s are very comfortable but that hasn’t mattered as prices get swept up in the commodity ‘risk-on’ trade. Likely due to the fact that spec short positions were a record as of last Tuesday as reported on Friday afternoon’s CFTC report.

Soybeans taking a small step back overnight down 3 to 5, corn and wheat meanwhile 1 to 3 higher. 



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