Morning Dairy Comments, 07/21/2016

Thursday, July 21, 2016

“Capital isn't scarce; vision is.” - Sam Walton



General Market News

  • ECB stands pat on rates, emphasizes easy policy for ‘extended period’
  • CREXIT?  Global company debt will swell to $75 Trillion through 2020
  • McDonald’s Franchisees fear fresh beef push is food safety disaster in the making
  • Idaho and New York Vie to become 3rd largest dairy state
  • Apple stands to make billions from pokeman go!



Class III & Cheese

Market slipped lower yesterday on low volume as we creep through the dog days of summer.  The spot auction had no activity and stayed unchanged.  Class III dropped 14 cents to 16.38 Aug-Dec 2016.  The 2017 full year strip settled down 5 cents to 16.39.

Cheese inventories continue to loom over the market perhaps limiting the markets appetite to maintain upside momentum. More interestingly, however, is the lack of worry in agricultural markets this week. A quick glance at a quote screen yesterday told a blunt tale: weather is not the biggest concern on the commodity table. Corn made a new contract low yesterday falling and soybeans made a new low for the recent move. Cattle, too, were lower and flirting with recent contract lows as the ag world faced a stronger dollar and growing concerns that weather problems won’t come to roost. The dairy complex was caught in the same bunker mentality amid light volume that resulted in modest weakness across the board. Hot weather and high dew points, in particular, over the next few days are a key concern for cow comfort and milk production, but the markets seems to have adjusted for that presently.
The USDA will release its June milk production report this afternoon. We expect US milk supply to have grown by 1.8% from last year. Much of this is predicated on continued cow number increases rather than milk-per-cow. Last June milk production rose by 1.0%. Although we typically see some strength heading into a milk production report, the bigger issue for the moment seems to be centered on spot market movement.

Yesterday’s spot cheese call was quiet and steady and it could have been because of a good round of golf (well at least we hope so). The annual Wisconsin Cheesemakers golf outing held on four different courses in central Wisconsin yesterday. Nearly 500 people attended. We’re not saying spot activity is beholden to the folks teeing up yesterday, but it is an interesting coincidence. Ultimately, it seems to us as though spot cheese has made enough of a move higher for now and that those looming (mostly aged) inventories may keep a lid on spot advancements this week. 

Yesterday the NDPSR showed Block cheese prices up just shy of 3 cents week over week to 1.5869.  Barrels prices were up almost 6 cents to 1.6653.  We’ve seen a steady increase in both block and barrel prices since the 1st of June as fresh cheese has been reportedly a little tight.

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



Class IV, NFDM & Butter

Butter and NonFat were again lower yesterday as we continue to see selling pressure off of recent highs. Butter finished just over 4 cents lower in August, 2 cents lower in both September and October. Last month we discussed that much of the strength we had seen in June seemed to be buyers being proactive and hedging against future needs this fall. The chart seems to tell the story as aggressive buying in June has relieved some of the pressure for now as we have traded consistently right around 2.35 basis October.  The question is whether or not there is enough buying interest, enough worry, and frankly not enough butter, to satisfy the market around $2.30. We continue to see the $2.30 to $2.40 area as Shangri-La for butter sellers.


NFDM continues to limp along trading above 90 cents (basis August) as EU intervention and historically low pricing has allowed prices to creep higher.  Supply will continue to weight on this market and aggressive moves higher will continue to struggle to maintain.

CWAP showed a 61% increase in volume over last week but with a 5 ½ cent drop in price.  The volatile weekly number has seen volumes fluctuate violently as prices fluctuate.  As you can see from the chart below generally as we see prices tick up volumes drop drastically. 


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


Grains finished lower again today as weather premium continues to get shed from these markets. Funds were net sellers of 12,000 soybeans and 8,000 corn contracts.  The funds are actually net short corn at this point and have shed 100,000 contracts since their net high position the 3rd week in June.

Weather updates mid-day yesterday added additional rain probability in the “dry” states (South Dakota, Minnesota, Ohio, Michigan and Wisconsin) over the next few days. We’re in the midst of some extreme heat/humidity, which will be a market consideration, especially for beans. As long as the rains continue to be timely, however, prices should continue to see pressure. But caution if the rains don’t materialize prices could react violently to the upside…especially for soybeans.


We look for the grain complex to open modestly higher this morning.


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