Morning Dairy Comments, 05/06/2016

Friday, May 06, 2016

General Market News

· China commodities selloff deepens, steel posts worst week since 2009

· China stocks slide nearly 3% on worries about looming bond defaults

· Brookside to train 100,000 dairy farmers

· BNZ reveals $566.7m ‘new impaired’ dairy assets

· Ease Russian sanctions to save dairy farmers, Devon EFRA chairman



Class III & Cheese

Class III and cheese futures turned their back on a lower spot showing and clipped up into positive territory by the close yesterday. Granted, with cash at multi-year lows and the fundamentals as they are we can’t say that the recent price action is an overall change in trend, but the market is telling us something. At this point the trade is likely wanting proof, waiting to be convinced that the recent downdraft in the spot market isn’t just a last gasp which could lead to a quick recovery and therefore a bit of short covering is likely in order. When we look at the technical side of things that is what’s starting to shape up.
It requires a bit of vision and some imagination, but there is the beginning of a double bottom forming on the July-December Class III strip. The right side of the formation having now dipped below the previous low before the recent firming of price is setting up for what is typically a classic bullish charting pattern. Take a look at the chart below. If the upside corrective action we’ve seen over the past two sessions leads to a reversal/breakout that eclipses the mid-April high,

July-December Strip - Daily


We’d be remiss not to stress that the movement over the past couple of days does defy logic. The export arena continues to languish with March numbers lower across the spectrum and coming in 20% lower than year ago levels. Cheese exports were down 26% from last year, marking the 18th consecutive month of lower tallies.
We’re still in the midst of the spring flush here in the US, but more chatter from the EU is turning toward poor grass growth in April and provisional estimates show lagging UK milk production (to be sure, Germany, for example, is still projected to be up about 3%). See below a comment from our colleagues in Europe:

The latest data for the UK from AHDB shows April collections continuing to lag behind last year. Cumulative collections for April (1st-23rd) totaled 0.985 million tonnes, down from 1.01 million tonnes for the same period last year, a reduction of 2%. The gap between this year and last year extended as we moved through the month; with the most recent weeks data (ending 23rd) showing volumes down 4% on last year. Continuing this trend for the remainder of the month would put April volumes at 1.29 million tonnes; down 3.3% on last year.
Heavy rain and low temperatures have been having a significant impact on milk production for much of North Western Europe, with farmers in some areas having to house their cows at night up to the last week and grazing during the day. The improved weather conditions over the past number of days and the forecast for the coming week is expected to significantly improve grass growth and grazing conditions with the knock on impact on milk volume.
We look for Class III and Cheese to open steady to lower and Dry Whey to open mixed.

Spot Session Results


















DOWN 3 ¾ 







UP 2   







UP 2  




Class IV, NFDM & Butter

The range bound affair continues in the NFDM market as futures retraced to the upside in light of a higher spot call, which is now migrating back towards resistance in the upper $0.70’s, an area where sellers have repeatedly stepped in to move product on the exchange. If a larger recovery is in the cards, the trade will have to deal with a healthy dose of technical resistance which has blunted recovery attempts on previous breakout attempts. As far as exports are concerned, NFDM has been a bright spot but slipped 25% below year ago levels in March, marking the first year-over-year decline since August. Not bullish.

Action in the butter market continues to impress with the 42.00 support level remaining intact and futures trading in a fairly balanced, two-sided fashion. Regardless of price levels, this is indicative of a market that is somewhat balanced and while the consolidating trade we’ve seen over the past couple of weeks has been volatile, direction has been mostly sideways as well. All things considered, end users continue to step in and secure protection at levels north of where the fundamentals suggest we should be. Back-to-back record pricing years has a way of having that effect on a market. That said, we’re still hearing that cream supplies are ample, stocks are adequate and multiples are low, in some cases at parity with the butter price.        

We look for NFDM, Butter and Class IV to open mixed.


As if the grains didn’t have enough volatility lately, we take a quick look at yesterday’s action.  Soybeans spiked to the upside following the release of strong export numbers but quickly saw pressure brought to bear upon the reopen in the morning and it didn’t let up until the closing bell. When the dust settled, beans had tanked over 20 cents and breached initial levels of support in the process (see yellow line on the chart below). If additional pressure is brought to bear to close the week, a test of the 20 day moving average (blue line) is probable and with favorable weather forecasts predicting a nice planting window in the days ahead, this is not an implausible scenario.

July Soybeans~Daily


The pullback in beans dragged on the corn market and took prices about 3 cents lower. Fund managers remain long the underlying in both cases here and have been net sellers over the past couple sessions, so it’ll be interesting to see what the CFTC has them clocking in at later this afternoon. The trade will be squaring positions ahead of next Tuesday’s USDA supply and demand report, which is scheduled for release at 11:00, CST. The fresh round of numbers will integrate new crop (2016/17) numbers into the balance sheet with expected wide-ranging tallies for both domestic and global ending stocks, which could spark a volatile trade once the official stats hit the wires.
Private analysts AgRural cut their Brazilian winter corn crop estimate by the token 10% yesterday, from 54.6 to 48.9 MMT due to hot and dry weather.

We look for Corn and Soybeans to open 1-2 higher.

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