Morning Dairy Comments, 07/19/2016

Tuesday, July 19, 2016

General Market News

· Canadian Dairy Commission to raise support prices for butter and SMP

· Senator Gillibrand urges USDA to repay MPP premiums to dairymen

· Dairy price declines have dropped NZ farm prices to their lowest levels since 2012

· China cuts red tape to ease domestic and foreign investment



Class III, Cheese & Whey

Class III and cheese futures extended price gains again Monday as hot weather forecasts and a firm tone to the block trade underpinned the markets. While weather is a big story this week, it’s important to realize that most of the weather risk premium was likely worked into the forward curve last week. Futures markets don’t wait for mere mortals to discuss the weather – futures markets get out ahead of it. Nearby class III, for example, is up some 50-70 cents since this time last week. The heat later this week is certainly expected to have an impact, but for now the market will be more focused on the GDT auction event and whether or not spot cheese can remain perched on their 2016 highs. Although block cheese was up yesterday, barrels sat quiet with no activity. Quiet with no activity is one thing if prices were sitting in a trough – sitting around 2016 lows. But at new high prices, with sellers willing to trade with bids over the past week, quiet is weak in our estimation. So to sum it up, the weather is underpinning, but we think stable to lower spot cheese activity is in the cards this week.

CWT accepted requests for assistance with the exports of 756,186 lbs. (343 MT) of Cheddar and Monterey Jack cheese to Asia and Oceania for the delivery period of July through November.  

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

Class IV, NFDM & Butter

The Class IV futures for 2016 settled between unchanged and 27 cents higher on a mix of trades and uncovered bids despite the subdued performance of the component markets.  The spot NFDM price slipped 0.500 cents lower on the day, yet the futures market hardly seemed to notice.  The July through October contracts settled mixed between 0.800 cents lower and 0.650 higher while the deferred months of November through March of 2017 registered gains of between 1.450 and 2.000 cents.  A vast majority of the price action occurred prior to the spot session, and without a significant headline to provide fodder for price action this week market participants will continue to look to the spot session to spark some volatility in the marketplace. 

The butter market yesterday did little in the way of reacting to the 2.75 cent decline tallied during the spot session as just two contracts posted changes in price by settlement.  The July 2016 contract fell 0.725 cents lower while the only other variation was the 0.025 dip posted in the January 2017 contract.  Whether the slowdown in activity is due to the summer doldrums or simply general fatigue after the volatility of the last month, we cannot be entirely certain. But we continue to see the area of $2.30 to $2.40 as ripe for butter sellers to come to the exchange. 

We expect NFDM, Butter and Class IV to open steady/lower.


The corn market trudged steadily higher throughout yesterday’s trading session as traders added a bit of weather premium ahead of the exceptionally high temps called for over the next several days.  Despite longer term weather models calling for cooler/wetter weather after the near term heat wave funds piled in, buying an estimated total of 8,000 contracts on the day.  The better than anticipated rains over the last week and a half have erased all the major deficits across the Corn Belt, even providing some surpluses to appear for this time of year compared to historical moisture levels.  With yesterday’s crop progress report holding the Good/Excellent rating of this year’s crop at unchanged from the week prior at 76%, last year at this time was 69%, and the weather models looking out over the next two weeks calling for complimentary conditions one would be hard pressed to find any substantial bullish factors to underpin any substantial gains in the near term.

Soybean contracts managed to shake off the early session bears, erasing double digit losses to settle as much as ten cents higher for the day.  The rally could be attributed to the market focusing on concerns relating to the heat wave projected to cross the Corn Belt over the next several days rather than the longer term weather models calling for manageable heat accompanied by rains 1-2 weeks out. The crop progress report out yesterday pegged the soybean crop at 71% G/E, unchanged from last week while well ahead of last year’s 62% rating during the same week.  China will hold another sale for a portion of its soybean reserves, 300,000 MT this week, though these beans are thought to be no better than feed grade.  Soybeans imported from Argentina are though be of no higher quality which will require the blending with U.S. soybeans.  Funds were credited with buying 9,000 soybean and 5,000 soybean meal contracts throughout the day.

Wheat futures tagged along for the ride today as the winter wheat harvest should see favorable weather conditions over the next week.  HRW prices continue to come in below corn on a feed value basis which could see the USDA forced to make some corresponding adjustments to their forthcoming S&D tables.  The spring wheat crop was rated at 69% G/E yesterday, down 1% from last week while in line with the 5-year average of 69.8%.  Funds were estimated to have bought 3,000 contracts during the trading session. 


We look for corn to open 3-5 lower, soybeans down 10-15 with wheat down 2-4 cents.  


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