Morning Dairy Comments, 05/10/2016

Tuesday, May 10, 2016


General Market News

· Dean Foods announces 1st quarter revenues up 91% year over year, to acquire Friendly’s Ice Cream

· Australian dairy farmers thrown into turmoil after recent farm gate milk price cuts http://goo.gl/GD7ZKz

· World stock markets rise amid Japan’s pledge to weaken the Yen

· Dead-of-night reversal puts Brazil impeachment back on track http://goo.gl/kviTT5

clip_image002

clip_image004

Class III & Cheese

It’s starting to look a lot like international dairy pricing.  We have heard for months now about low farm gate milk prices in both New Zealand and Europe.  Dairymen in those regions have even taken a page from millennial’s play book and have begun to stage protests.  A quick google search of “dairy farmers protest” yields an extraordinary amount of articles detailing numerous protests this past month.  These demonstrations may have influenced the EU’s decision to expand intervention, but further government involvement may corrupt the free market policy the EU chose when it removed the quota system.  Although the US has experienced low dairy pricing during this same time, the sometimes mysterious domestic demand has insulted us from the worst of the bearish declines experienced elsewhere. That support has given way as we are far from $1.40/lb. spot cheese, dropping yesterday below the $1.30 mark in both the Blocks and Barrels for the first time since March 25th, 2010.  Many dairymen in the US have anticipated this downturn in pricing, having taken steps to mitigate risk through hedging, and understand there are no safe spaces in the dairy market while buy side interests are now addressing only immediate needs in expectation for further weakness in the forward curve.

After a brief pause in price weakness Friday Class III and Cheese futures continued their downward trajectory Monday; settling on average 11 ¼ cents and 1 ½ cents lower respectively. The June Class III contract made a fresh contract low of $12.55/cwt, $1.50 lower than it was just 3 weeks ago. During the spot call both blocks (- 3 ¼ cents) and barrels (- 2 cents) broke through the $1.30/lb. barrier. Blocks settled at $1.2725/lb., while barrels finished at $1.28/lb. The current spot cheese pricing puts the US right in-between EU and NZ cheese prices. Latest international data after adjustments for volume and currency put the EU at $1.35/lb., and NZ at $1.16/lb. for cheddar cheese. Like the dairy markets of late, the dollar index has also seen some weakness, which serves as the one of the only silver linings of support for now.

We look for Class III and Cheese to lower and Dry Whey to open steady to marginally higher.

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

1

$1.2725

DOWN 3 ¼

0

0

 

BARRELS

4

$1.2800

DOWN 2 

1

1

NFDM

GRADE A

6

$0.8000

UP 2 ¼    

0

1

BUTTER

GRADE AA

1

$2.0500

DOPWN ¼   

0

0

clip_image005

Class IV, NFDM & Butter

The weaker dollar may be helping NFDM more so than any other commodity in the dairy complex.  With the price the EU is willing to buy SMP fixed at €2217/MT, the ceiling to which domestic prices can touch before no longer being price competitive is highly dependent on currency fluctuations.  We have seen the USD/lb. price equivalent intervention price shift from a low of $1.05/lb. in Nov 2015 to a high just a few days ago to $1.15/lb. This may be the reason why spot and futures have been able to push higher.  NFDM futures finished on average almost a cent higher Monday.  The spot session saw 6 trades for the day, settling up 2 cents to $0.80/lb.  

The butter futures settled down yesterday as it looked to a spot market that saw one load traded before closing ¼ cent lower to $2.0475/lb. Most of the futures volume was in the Sept 16 – Nov 16 months as contracts settled mixed with prices ranging from up 0.550 cents to down a penny. The Q1 2016 pack traded 5 times, around the $2.00/lb. price level, which would be considered a bargain if history were to repeat itself and the market turns aggressively higher later this year.

Class IV saw an uptick in volume on Monday, settling higher from a bullish spot NFDM market. With the combination of higher Class IV futures and lower Class III, the spread between the two are approaching levels not seen since the middle of January.  The resilience of the Class IV complex has flipped the III/IV spread, with Class IV values the higher of the two, which should continue to generate traders’ interests.

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

Grains

The grain markets all closed lower yesterday ahead of today’s USDA report (estimates below), as the corn, wheat and soybeans settled from 4-8 cents in the red. The planting progress report showed soybeans at 23% national, behind last year at 26%, but ahead of the 5 year average of 16%. 64% of the corn crop has been planted already this year, behind last year during the same time frame by 5%, but ahead of the 5 year average of 50%. Funds we thought to have been sellers of both corn and beans yesterday, but still hold net long positions. USDA supply and demand report comes out today. A higher than expected ending stocks number would need to scene to reverse the current bullish trend.

clip_image006

clip_image007

We look for corn and wheat to open 1-3 lower, and soybeans to open 1-4 higher.


Unless otherwise noted, the posts on this blog should be construed as market commentary, merely observing economic, political and/or market conditions, and not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. or its subsidiaries. INTL FCStone Inc. is not responsible for any trading decisions taken by persons viewing this material. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. or its subsidiaries. Reproduction without authorization is prohibited. All rights reserved.

Market Intelligence Free Trial