Morning Dairy Comments, 05/03/2016

Tuesday, May 03, 2016


General Market News

· ***GDT Auction this morning***

· Freddie Mac earnings today

· FICO to start included phone, utilities & other bills in score calculation

· USD continues slide down near 500 points yesterday

· Despite the slide in the USD crude oil was down over $1

· Bullish sentiment toward stocks falls to lowest point of year for April and see largest decline in nearly two years

· Reserve bank of Australia cuts cash rate to 1.75%

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Class III & Cheese

Class III and cheese futures took a hit yesterday with nearby contracts plunging to fresh contract lows in light of pressure being brought to the spot market where the both barrels are looking vulnerable and quite likely about to join blocks in sub-$1.40 territory. The trade has been a bit complacent of late, taking a “show me first” approach before committing to price direction in what has been a volatile cash trade on the exchange. The market feels heavy here after topping action from mid-April has subsequently driven prices to fresh lows with additional downside not out of the question if barrels slip back below $1.40 support. Bargain hunters may start stepping in lightly to secure price levels, however with price action starting to align itself with the fundamental picture, support may be fleeting as the trade recognizes a panic downdraft may be in the offing.

Fact is, cheese production has been ramped for an extended period of time and about to ramp higher as milk production in the Midwest remains strong, vats remain full and we’ve yet to reclaim any market share in the export arena. That said, the focus remains on the domestic side with the concern being that a fire drill at these levels could tank this thing a bit further from here if the trade collectively hits the panic button. Taking a look at the July-December timeframe, the March lows are now in the cross hairs and offering up the only material level of support left on the chart, which if breached would put prices well into “no-man’s land” in search of a bottom. About the only hope for recovery here would be a test of those lows followed by a corrective upside move, which if successful past the mid-April highs, could lead to a larger recovery down the road, especially if other fundamental aspects shift in tandem, such as a weather scare or continued lower price action for the USD, which at some point will factor into the psychology of the trade even if there’s no immediate impact in exports (see black arrow on chart below).

Cooperatives Working Together (CWT) has accepted 7 requests for export assistance to sell 1.232 million pounds (559 metric tons) of Cheddar cheese and 130,073 pounds (59 metric tons) of whole milk powder to customers in Asia, Central America and Oceania. The product has been contracted for delivery in the period from May through July 2016.

July-December Class III Strip~Daily

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We look for a lower opening to Class III and Cheese and steady opening for Dry Whey.

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

0

$1.3600

DOWN 1

0

2

 

BARRELS

5

$1.4000

DOWN 1 ¼

0

1

NFDM

GRADE A

2

$0.7475

DOWN ¾  

2

1

BUTTER

GRADE AA

1

$2.0600

DOWN 6 

0

1

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Class IV, NFDM & Butter

The butter trade stole the show on the Class IV side of the equation as a downdraft on spot triggered sharp sell side action, driving the June contract limit down and dragging the balance of 2016 into the red right with it. What we have here is a market that is aggressively reacting to the whims of spot pricing which when you add fear to the equation spells volatility. That’s exactly what we’re seeing here as the firm tone we ended last week on has been washed out with the latest downdraft on spot. The $2.00 mark continues to be the line of demarcation as hedgers have been proactive to secure at that level and though the fundamentals would suggest probing to lower levels, it will likely take a sustained downdraft on spot for that to materialize. For the time being, the trade is set up to trade in volatile, sideways fashion for the near future.

NFDM also opened the week in the red as the spot price settled back towards mid-range in the $0.70’s, leaving futures vulnerable to pressure. Though the extent of yesterday’s move was limited, it does keep the range bound trend intact as there remains a lot of powder out there from both a domestic and an international standpoint. The trade will be looking closely at today’s GDT auction however without a breakout move to the upside the market will continue to lack the game changer it needs to break the shackles of its month’s long range (see blue lines on chart below).

July-December NFDM Strip~Daily

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We look for a mostly lower opening for Class IV, NFDM and Butter.

Grains

Grains opened the week with a solid dose of volatility as the complex was driven lower on Sunday night and for a good chunk of yesterday’s session before soybeans struck a bid off of technical support levels and reversed sharply into the green by the closing bell. This offered the corn market a life line, which went on to post fractional gains in the face of bearish planting progress, which came in 45% planted this week and is expected to ramp up significantly over the next week as weather forecasts remain near ideal. That said, the market feels overdone here and if price action fails to breakout of the recent consolidation pattern it’s been in for the past couple of weeks, the funds may decide to lighten the load a bit and take some exposure off the balance sheets.  Weather risk premium will continue to remain priced in until the 2016 growing campaign comes into clearer focus, which will limit the extent of downside pressure for the next few weeks.

July Soybeans~Daily

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We look for grains to open steady to slightly higher for corn and wheat with soybeans up about a dime. 

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