Morning Dairy Comments, 07/01/2016

Friday, July 01, 2016

General Market News

· Global bond yields fall as central banks head for easier policy

· Gold heads for 5th weekly gain, silver jumps to 22 month high

· New report shows growth of lactose-free dairy markets

· EU Ag Commissioner rules out re-introducing milk quotas amid dairy downturn



Class III, Cheese & Whey

Just when we thought there was enough cheese out there, the spot market shows just how vulnerable to fresh cheese vagaries it can be. In just a few days the spot average has rallied some 18 cents. Yesterday, there was a good two-sided trade for barrels in which 12 loads traded at $1.71. Buyers are determined; sellers see an opportunity and the futures, which would have normally rallied higher still, gave up the ghost yesterday. The past two days were really about convergence of spot and futures. The spreads have been running unsustainably wide for the entire month and history has once again repeated itself. The type of action we saw yesterday usually signifies a turning point for the market. Once the spot/futures spread narrows, the preceding move is over.

Now it is possible (maybe a 5-10% chance) that spot sails thru $1.70 and $1.80 and a seismic shift occurs that pushes the forward curve out of a “carry” to backwardation – a pricing skew in which the spot market is the highest price on the board. But if we haven’t done that by now, we’d err on the presumption that the futures will continue to lead the way. The fact that futures were lower yesterday is demonstrating that the spot price movement is adequate for now and the most likely scenario for near-term price action is sluggish/sideways to lower as we usher in a new month. We also look for diminished trading volumes today as folks in the U.S. get prepared for the long holiday weekend.

The Central Mostly Dry Whey powder price was unchanged from the previous week at 24.75 cents, while the Western Mostly price was 0.62 cent higher at 25.50 cents.

For the week ending June 18, dairy cow slaughter under federal inspection was down 1.6%, at 49,800 head, compared with the same period the previous year. Year-to-date slaughter levels are 1.4% lower than 2015 levels, with 1,400,800 head slaughtered.


We look for Class III, Cheese to open modestly higher, and mixed for Dry Whey.


Class IV, NFDM & Butter

NFDM ran into some strong headwinds again yesterday as spot sell side interest dropped the cash price a penny. Futures followed suit trading mostly lower through Q1 of 2017. Although futures were lower yesterday, they seem to be in more of consolidation mode around recent high price prints. Overall it was class III and cheese that took the limelight in June, but it does look like the bear cycle in powder has also ended. Inventories are still reasonably heavy, which has capped recent gains. But the market isn’t trending lower anymore. And that is likely what we all should be paying attention to.

The Dairy Market News Western Mostly NFDM price was up 1.50 cents from the previous week at 85.00 cents per pound. Last week’s CA Weighted Average price was 78.21 cents, up 1.32 cents from the previous week. The CME Grade A NFDM price is down 3.00 cents from last Thursday at 87.00 cents. There were 33 trades.

Butter futures moved modestly higher thanks to the 2 cent gain tallied during the spot session. The butter market has worked to establish its second wave upward to close out the month of June. Commercial buyers continue to add additional coverage on weakness. That will not always be the case, but it has played out that way this week. Concerns over the available supply of butter in the coming months that will be needed to meet the year-end holiday demand will have the butter market susceptible to volatile prices swings. But for today we look for butter futures to stall out on this recent rally and turn modestly lower.

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


Yesterday’s price action in the grain markets was driven solely by the release of the USDA’s acreage and stocks report, leading to some staggering moves in the soybean market. Soybean prices surged higher as the reported acreage number failed to meet expectations, 83.688 mln acres versus expected 83.834, despite a stocks number that could be viewed as slightly bearish, 870 mln bushels versus the expected 829. While the acres number was less than 200,000 below expectations the continuing strong export demand for soybeans and bean oil have many concerned about the potential for extraordinarily tight stocks with the prospect  of summer weather that could curtail yields. Funds were credited with buying 18,000 soybean contracts, 1,000 meal and 5,000 oil during the session.

The corn futures traded tightly around unchanged prior to the report before plummeting lower on the large increase in acreage rather than the small reduction the market had anticipated while quarterly stocks jumped approximately 200 mln bushels higher. The stocks figure was key to the downward price action as feed usage was less than expected which will lead to a higher carryout figure for the 15/16 season. Funds were estimated to have sold 25,000 contracts on the day.

The wheat market was pulled in both directions as the corn and soybean moves tugged at the wheat values before closing with minimal gains.  The USDA increased all wheat acres by a figure larger than predicted leading to estimates for a significantly large carryout. 


We look for Corn, Soybeans and Wheat to open modestly lower.

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