Morning Dairy Comments, 06/24/2016

Friday, June 24, 2016


General Market News

  • Markets are in freefall overnight with the Japanese Nikkei down 7.92%, DAX is down 7.14%, and the S&P is down 80 points
  • The British Pound had its worst crash ever plunging more than 11% to a 30-year low of 1.3239 per USD with analysts suggesting this event can likely drive the UK into recession.

· World Markets Upended by Brexit as Stocks, Pound Drop; Yen Soars http://goo.gl/XlTUHw

· U.S. Capital Goods Orders Unexpectedly Drop Most in Three Months http://goo.gl/iE14xB

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Class III, Cheese & Whey

We thought we’d have enough to write about this morning with yesterday’s busy rally in class III and cheese markets, but alas we’d be wrong. The rally yesterday seems like an afterthought in the wake of the UK vote to leave the EU that rocked markets last night. The Pound Sterling and Equities got killed. Commodities got crushed and the US dollar is up over 2,000 pts this morning as is Gold, which is some 70 cents higher. UK Prime Minister David Cameron gave his resignation speech about 6 hours ago as world financial markets are in turmoil amid growing concern that the UK may have paved the way for other countries to exit the EU. Most likely such a decision will lead to a renegotiation of terms among other EU members, but the markets are dealing with a period of uncertainty this morning.
The dairy complex is also under pressure this morning. Class III traded 10 to 50 cents lower overnight erasing most of yesterday’s gains and more so in some months. Cheese is also weaker, showing losses of 1 to 4 cents on the initial wave lower overnight. NFDM is down 1-3 cents, butter steady to 1 lower and dry whey off about ½ cent. The commodity markets including dairy are worried about – and reacting to – financial market uncertainty.

A little closer to home, dairy traders are looking at the US dollar rally this morning and saying if we had already priced ourselves out of the export market, this dollar rally is not going to help our cause. Also grain prices are coming down dramatically, which is a much welcomed change for dairy producers this week. All of this is bearish (at least in the short-term) against a back-drop of stable to lower dairy spot markets this week. Ultimately, it’s difficult to say how low much lower dairy prices could go in the short-term. We think the market will be sharply lower today in line with the overnight.

This afternoon the USDA will release the May Cold Storage numbers. We expect American cheese stocks to gain 1.3% from last month and rise 11.8% from 2015 levels. May stocks have been above previous-month inventories in 8 of the past 10 years. At 748.3 million pounds, stocks would be 85.3 million pounds above their five-year average. Weekly cold storage holdings of cheese in selected storage centers gained 2.5% during the month. I expect total cheese stocks for May to increase 1.6% from previous-month levels and expand 10.98% above year-earlier levels to 1,233.9 million pounds. May’s total cheese stocks have been higher than the previous month’s level in 9 of the past 10 years.

We expect May butter stocks to be 26.7% above 2015 inventories at 336.1 million pounds. May’s expected stocks level would above the five-year and 10-year averages. Month-to-month butter stocks should show a 12.7% increase. Last year, April-to-May holdings were 14.1% higher. April-to-May butter stocks have increased in 10 of the past 10 years.

For the week ending June 11, dairy cow slaughter under federal inspection was up 3.5%, at 50,700 head, compared with the same period the previous year. Year-to-date slaughter levels are 1.4% lower than 2015 levels, with 1,351,000 head slaughtered.

The Central Mostly Dry Whey powder price was unchanged from the previous week at 24.75 cents, while the Western Mostly price was 1.00 cent higher at 24.88 cents.
 
The Dairy Market News Western Mostly NFDM price was up 2.00 cents from the previous week at 83.50 cents per pound. Last week’s CA Weighted Average price was 76.89 cents, down 0.32 cents from the previous week. The CME Grade A NFDM price is up 6.25 cents from last Thursday at 90.00 cents.

We look for a lower opening across the board for dairy this morning.

Grains

Corn and soybeans were crushed overnight and look poised to open lower for the 4th straight day this week. Funds are jammed up now on the BREXIT move and price weakness prevails. What started with excellent corn weather continued with speculative selling ahead of (and after) the Brexit vote. All the while there’s been a focus on “big strike” prices for the July option expiration today ($4.00 July corn options and below that $3.70 July corn puts and $11.00 July soybean options open interest is acting like a magnet for futures).

Support for corn comes in from about $3.95 down to about $3.80. Below $3.80 and the market will likely want to retest April’s lows. Below that and we’re in new low territory and a resumption of the bearish trend. Soybean support comes in between $11.00 and $10.80 and around $3.60 for soybean meal. But for now, this set-back is giving end-users a good chance to get some new crop needs locked up when the dust begins to settle. Not a bad time to use the chaos to your advantage.

We look for grains to open lower across the board


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