Morning Dairy Comments, 07/15/2016

Friday, July 15, 2016


General Market News

· France extends state of emergency after truck attack

· Wholesale inflation posts biggest gain in over a year http://goo.gl/97xDWa

· Lockhart says Fed should wait until post-Brexit outlook is clearer before raising rates http://goo.gl/DLZLm2

· Yum Brands shares rally on raised earnings forecast http://goo.gl/Eg9nrZ

· GMO labeling bill heads to Obama http://goo.gl/ToqV8W

· FCC approves 5G. Cellular Data speeds poised to get 10 times faster

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Class III & Cheese

Spot bidding helped underpin class III and cheese futures Thursday as market prices reversed course in what has become a rather choppy sideways trade – with big trading ranges. We’re not yet making new high price prints and because of that the charts look more mixed than anything. Weather continues to dominate our discussions and traders have also been reacting to central and Midwest heat expected next week. Interestingly, the grain markets, which have attempted to build in their own risk premium this week, finished lower yesterday and are opening lower this morning. This may weigh upon buyer sentiment should the spot market stall around current levels. In other words, although the class III/cheese markets experienced a sharp rally yesterday, there remains a distinct vulnerability to the strength until a more clear direction emerges. From our standpoint, the spot market is built up enough for the time being. We’re not saying it will top out here, but we expect that the market will likely find some more sustainable equilibrium in the mid to low $1.60s here in July. Producer selling has been light this week, but we expect that the rally yesterday may reinvigorate some producer activity around current levels.

Class III Volume                                                          4th Quarter Class III Pack

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Commercial disappearance (released Wednesday) was lackluster at best. Total cheese disappearance in May was unchanged from last year but down 4.4% from April.  American cheese demand in May was 1.4% below a year ago and down 5.8% versus previous-month levels. The bright spot, if there was one for cheese, was demand for the “other” cheese category, which increased 0.9% from 2015 levels. But even “other” cheese was 3.5% lower than month-earlier levels. As you may have already guessed, we’re expecting June’s usage numbers to tell quite a different story given the sharp price rally in June.

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

 

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Class IV, NFDM & Butter

The butter market reminds me of a recent article I read in which a scientist boiled down the vagaries of space exploration. She explained, “it’s like a table plan at a wedding: you think you’ve got it all sorted out and then you notice that, because the caterers gave you a round table instead of long one, your Dad is now going to be sitting next to your Mom’s new boyfriend.” Just when we think we have the butter market sorted out (in this case the expectation the butter price should fall), someone changes the table arrangements (multiple buyers come out of the woodwork and bid the spot price back up). The ensuing food fight bolstered butter futures by 1.30-4.75 cents Thursday as the market remains on pins and needles.
Last year at this time the butter market was about 2 ½ months away from posting a record $3.14 spot price. That kind of memory is not lost on butter buyers who likely have more coverage than in 2015, but not as much as they would like. Cream appears to be available at moderate multiples and we’d guess that, given the stocks levels, there is more butter available today than this time last year. With that information, we’d assert that the “plenty of butter, just none for you” dynamic to this market will give way to “how much do you want” between $2.30 and $2.40.

The NFDM market packed a bag, grabbed a cigar, and hung the old gone fishin’ sign on the door yesterday as we had to check to make sure the lone contract that was traded was accurate. To be sure, Thursday’s ne'er do well of the dairy complex saw July through November time period was bid modestly higher, but if not for the single trade in November at $1.0055 the NFDM market would not have traded yesterday. Suffice it to say, the spot market appears to have found a nice equilibrium in the high 80 cent range for the time-being and we don’t expect that to change today.

The Dairy Market News Western Mostly NFDM price was up 2.00 cents from the previous week at 90.00 cents per pound. Last week’s CA Weighted Average price was 86.68 cents, up 9.13 cents from the previous week. The CME Grade A NFDM price is down 2.25 cents from last Thursday at 87.50 cents. There were 22 trades.

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

Grains

What a difference a forecast makes. We are in the midst of a knock-down-drag-out grain weather market, which is taking the ‘fun’ out of fundementals. November soybeans hit highs as the US was waking up but technicians were disappointed as the market was unable to fill the gap from the beginning of the month. This reticence of the market to extend gains allowed the market to slide off of highs. Mid-day the market received updated weather forecasts that removed some heat and added additional percipitation to the 11-15 day forecast which caused the market to drop. By the end of the day we finished 43 cents lower in Nov soybeans, 5 cents lower in sorn and 4 ½ cents lower in sheat. The funds ended up selling an estimated 20,000 soybeans, 11,000 corn and 4,000 wheat.

    Daily Soybeans (Nov)                                                   5 minute Soybean (Nov)

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We look for Corn and Wheat to open 1-3 higher and Soybeans to open 1-4 lower.


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