Morning Dairy Comments, 06/15/2016

Wednesday, June 15, 2016


General Market News

· ***GDT this morning***

·  FOMC rate decision this afternoon

· Alibaba projects 48% revenue growth this year

· Treasury yields tumble to fresh 3 ½ year lows as investors brace for fed statement

· FDA warns Whole Foods over ‘serious violations’ in prepared foods http://goo.gl/YZ9Nny

· Brexit could shock complacent market http://goo.gl/6l46cq

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Class III, Cheese & Whey

Early yesterday class III markets were racing higher after Monday’s strong close.  Additional strength overnight peaked pre-spot with 2nd half class III sitting nearly limit up at 16.60.  The futures looked to be front running a spot cheese auction that ultimately closed with no activity and we saw the market reverse direction quickly finishing, at 15.84, 11 cents lower on the day.

Yesterday’s action looks like a classic blow off top.  The last few days the market has been talking about everything but fundamentals.  Short covering, margin management, momentum trading, etc. were discussed over the last week.  Don’t get us wrong we believe there will be fundamental reasons to push class III/cheese higher but we don’t believe we are there yet. 

Yesterday’s close looks to have stalled stochastics (developing a sell signal), RSI is flattening and will likely weigh on traders.  Butter strength seemed to bolster buyers enough to push the class III & cheese markets off of the lows of the day.  The spot auction will most likely drive this cheese market today even in spite of the GDT auction this morning.  Aggressive buying is probably needed to extend this rally.  If we get a “no activity” or lower auction we would expect additional weakness in class III/cheese.

2nd half Class III Pack

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

 

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Class IV, NFDM & Butter

The spot NFDM market was unchanged at 85 cents on 2 trades, while there were 10 offers at 87 cents.

All eyes will be on the GDT auction this morning where we expect more strength to transpire. Overall the NFDM futures were mixed and rather tame compared to the domestic cheese and butter futures markets!

The CWAP printed 77.21 cents up about 2 ½ cents on much lower volumes of 8.3 mil pounds.

The spot butter market was bid 5 ½ cents higher to $2.27 1/4 with no trades. Panic buying on the futures ensued as many contracts traded the 10 cents limit higher before settling off the highs. Buyers seem to be caught short on this rally, having never gotten the chance to buy at the $2.00 or $1.90 mark so many discussed at ADPI, which is likely added fuel to the fire at the moment.  Comparing the last three years we have seen gradual mostly steady increasing prices accelerating in August spiking to a high mid to late September.  Besides the large drop the end of last year the 2016 contract has seen a slightly less certain but at times, like now, frenzied buying as users manage their risk more aggressively trying to stave off the late summer run-up.  We would not be the least bit surprised to see this recent upturn wash out some as it seems too much too early from a seasonal standpoint. 

October 2016, 2015, 2014

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We look for NFDM to open mostly lower and Butter to open mixed.

Grains

The grain market finished mixed with wheat and soybeans showing losses while corn finished a handful higher.  Monday afternoon the USDA reported soybeans to be 92% planted compared to the 5 year average of 87%.  Conditions for both are ahead of the 5 year average and last year. 

Corn had a Good/Excellent rating of 75% compared to 74% last year and 69.4% average.

Soybeans had a Good/Excellent rating of 74% compared to 69% last year and 66.8% average.

The better than expected ratings, the removal of some heat and addition of some moisture to the 6-10 forecast helped to soften the bulls in the market.

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We look for Corn and wheat to open mostly 1 to 4 higher, soybeans 3 to 6 higher.

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UK milk production estimate for May

Further to yesterday’s Eurostat milk collections data for April data released by AHDB this week showed UK milk collections for May are estimated at 1.38 million tonnes, a reduction of 2.9% on May 2015 collections and an even greater reduction than the 2.2% reduction we predicted a couple of weeks ago. Despite the fall off in production, collections remain 1.8% ahead of the three year average for May. Based on this data and combining it with historic Eurostat data, cumulative collections for the year to the end of May would total 6.41 million tonnes, flat on the same point last season.

EU Dairy exports for April—see report attached for full details

Data released by the EU Commission yesterday showed EU dairy product exports maintained a strong pace in April with butter, cheese and WMP exports all up on April 2015, but SMP down slightly. Butter exports for April totalled 20,838 tonnes, over 5,000 tonnes more than March and over 7,000 tonnes more than April 2015. Total butter exports for the year to date now stand at 62,282 tonnes, up from 46,852 a year earlier. SMP exports in April totalled 49,057 tonnes, bringing the season to date SMP exports to 227,788 tonnes, down from the 248,529 tonnes exported by the same point last season. Cheese exports for April totalled 69,131 tonnes, leaving the cumulative exports for 2016 to the end of April at 253,848 tonnes, up from 222,792 tonnes a year earlier. WMP exports for April totalled to 35,837 tonnes, while year to date WMP exports now stand at 129,869 tonnes.

EEX Futures

A total of 60 lots (300 tonnes) traded on EEX yesterday with all the volume over Q4 2016 butter. Oct16, Nov16 and Dec16 each traded 20 lots per month and all at €3,175.

NZX Futures

Ahead of today’s GDT, a combined 790 lots/tonnes traded on NZX overnight with 700 lots/tonnes trading on WMP and 70 lots/tonnes trading on SMP and 20 lots trading on AMF. Aug16 WMP traded 200 lots at $2,345, down $25 from its last trade on Tuesday. Sept16 traded a further 230 lots, the first 30 at $2,385, down $5 from the last trade on Tuesday and the remaining 200 lots at $2,375. Oct16 saw 240 lots, the first 40 at $2,410, up $35 and the remaining 200 at $2,405. Nov16 traded the final 30 lots on WMP at $2,435, down $5 from its last traded price on Tuesday. SMP traded 70 lots overnight on the Sept16 and Oct16 contracts. Sept16 traded 50 lots, the first 30 unchanged on the previous days last trade at $2,060 and the remaining 20 lots at $2,100. Oct16 traded the remaining 20 lots at $2,150, up $100 from its last traded last Friday. AMF traded the remaining 20 lots on NZX overnight on the Oct16 contract at $3,800, up $50 from its last trade on June 15th. We are forecasting GDT moving higher in today’s auction by between 2% and 4%, with SMP leading the way.


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