Morning Dairy Comments, 08/10/2016

Wednesday, August 10, 2016

General Market News                

·      USD opens higher but finishes lower, despite that crude oil pulls back after Monday’s gains

·      Overnight the USD dipped over 650 points and while most everything else on our general market screens is green, crude oil is still down slightly

·      Wendy’s bests earnings and revenue expectations but same store sales up 0.4% vs. expectations for up 1.9%, concerning for dairy demand after McDonald’s also fell short on same store sales a couple weeks ago

·      Ireland shows strong dairy cow birth rates, gaining 5.9% this year after 10% growth a year ago:

Class III, Cheese & Whey

In recent sessions the class III futures market has seemingly been a reluctant follower of the spot market to the upside, however yesterday it was just the opposite as spot saw some weakness in the block, down 1 cent, but futures still closed mostly firmer. Early on in the session it looked as though the class III market may run away to the upside with nearby months up double digits, as much as 18 cents but the pullback in the spot session did take futures off their highs. In the short term it seems to be a very mixed picture on the physical side for cheese. On one had you have seasonal demand, a recent decline in milk production due to heat the last week of July that some areas of the country have yet to recover from and kids going back to school taking additional supply away from processing. On the other hand you have a market that is 58.50 cents from its lows made under 3 months ago for the block and 61 cents off its low for the barrel, a grain market that looks prepared to threaten the $2 handle this fall, a USD index that is nearly at 100 & massive inventories of product.

Add it all up and our belief is the spot market is likely to trade in a pretty tight range through labor day until we can get past the seasonal demand for cheese. We’d not be surprised to see the barrels move into the $1.90’s and we’d also not be surprised to see the blocks dip to $1.75, though not at the same time. Weekly NDPSR will be very closely monitored today.

Cheese futures finished mixed from -0.007 to +0.010 on good volume of nearly 250 trades yesterday while dry whey contracts were steady to 0.625 firmer on volume of just under 30 trades. This will be an interesting market to monitor as international prices have found some support but as with NFDM one has to wonder just how quickly the physical market can rebound.

We look for Class III and Cheese to open slightly lower, Dry Whey firm.


Class IV, NFDM & Butter

NFDM prices continued to rally on Tuesday supported by NZX futures which were higher Monday. Overnight NZX futures were mixed for SMP with nearby months a little softer and deferred contracts continuing to find support. Reports out of NZ state that some areas were hit with severe snows but reports are that most if not all farms now have portable electricity and are able to milk cows though some dumping did occur. This early in the season any dumping should be inconsequential however. NFDM volume was strong with over 250 trades taking place and it was interesting to note that December 2017! Traded 47 times and settled up the limit 4.00 cents at 126.500. The nearby contracts of Aug and Nov both closed a few ticks lower but Oct through the first half of 2017 settled steady to +1.675 cents despite already carrying a sharp premium to the spot market which did close higher but remains below 85 cents. With the international markets firming we’d like to be more bullish of NFDM but there sure is a lot of product being sold on the spot market at prices well below futures.

Convergence needs to continue to occur and at the moment spot feels a little underpriced though it seems likely that futures will have to fall as the spot market rises in order to correct the spread. For now 90 cents seems likely, prices higher than that will require more bullishness from the international market as we must still compete for export business with New Zealand and the EU now that product moving into intervention has slowed.

Weekly CWAP prices came in at 79.95 cents an increase of 0.75 cents and interestingly volume came in nearly at a 2016 low of just 5.7 million pounds. It’s likely the bulls would look for a more substantial increase in pricing on such light volume and for that reason we’ll look for some weakness on 2016 futures today.

Butter futures were relatively quiet in comparison to what was seen on cheese and NFDM as just 80 trades took place and nearly all of them were in Sept through November where prices were down 0.800 to 3.925 cents. This likely the calm before the seasonal storm. Spot will likely make a run at some point though it may be a little later this year, think just ahead of labor day and everyone is questioning just how far we can go…..currently our feeling is the $2.40 to $2.50 level should hold things given the amount of product in storage…but with butter you just never know.

We expect NFDM, Butter and Class IV to open mixed today.  


With the USDA report looming and a slight dip of in the crop ratings for corn it was a relatively slow day for the grains. Overnight soybean prices were up double digits but by the close prices were well off the highs and for corn closed very near the lows. The thought process has been we are likely to see some short covering from the funds ahead of the report but that wasn’t the case yesterday as settlements were -2.25 cents for corn at $3.3250, +3.0 cents for soybeans at $9.88 & down 2 cents on wheat to $4.3675. We’ll be curious to see if the late day selling can continue as we wouldn’t expect it to for the balance of the week at least until the report is released Friday morning, estimates included below.

We look for a mixed open on grains. Corn steady to 2 higher, beans 3 to 6 higher and wheat steady to 2 lower.

German and French milk solids collected in June

Last week we reported Eurostat data showing German and French milk collections in June fell by 1.5% and 3.3% respectively leaving their respect cumulative milk collections for the year to the end of June up 3.7% and flat on last year. Examining the constituents of the milk collected from each of the countries so far this season showed the average fat and protein content has been on average slightly higher than that observed last year which for Germany amplified the Y/Y percentage change and for France, offset some of the falloff in milk collections. This was also the case in June for both countries, as milk solids (MS) collected increased  compared to last year. German milk collected in June had an average fat content of 3.98% vs. 3.96% a year earlier while the German protein content was down slightly at 3.33% vs 3.34%. French milk fat was up by 0.07% in June compared with 2015 to 3.89% vs. 3.82% a year earlier, while like German, French protein also eased slightly to 3.15% from 3.16%.

The result of this was German MS collections in June were down 1.3% compared to the 1.5% reduction observed in liquid milk collections while cumulative German MS collections for the year to date are currently 4.6% ahead of last year as opposed to 3.7% in liquid milk terms. French collections in June were 3.3% behind last year in liquid terms, while French MS collections were down 2.5% Y/Y. Cumulative French liquid collections were flat by the end of June while French MS collections were up 0.7% Y/Y.

French milk production looks set to fall further in July compared with last year according to the most recent FranceAgriMer data which showed collections for the four weeks from June 27th to July 24th down by between 0.53% and 4.13%. French collections for the season (Apr 4th to Jul 24th) total 7.74 million tonnes, down 1.9% on the same period last year. The data shows weekly collections this season exceeded their corresponding week last season just once, back in April on the first week of the season.

EEX Futures

A combined 113 lots (565 tonnes) traded on EEX yesterday with five lots (25 tonnes) trading over butter and 108 lots (540 tonnes) trading over SMP. Butter traded its five lots over the Jan17 contract at €3,675, up €75 from its last traded price from last Friday. SMP traded its first 23 lots over the Aug16 contract with the first three lots trading at €1,890, unchanged from the previous day’s last traded price, the next 10 lots at €1,895, and the remaining 10 lots at €1,904. Oct16 traded the next 20 lots as the first five traded at €1,925, up €15 from its last traded and the remaining 15 lots at €1,926. Nov16 traded the next 15 lots with the first five lots trading at €1,950, up €20 from its last trade from Thursday and the remaining 10 lots at €1,959. Dec16 traded a further 15 lots with the first five lots trading at €2,000, up €50 from its last traded price from Friday and the remaining 10 lots trading at €1,964. Jan17 traded the final 15 lots of SMP yesterday with the first five lots trading at €2,000, up €55 from its last trade last Wednesday and the remaining 10 lots trading at €2,009.

NZX Futures

A combined 1,044 lots/tonnes traded on NZX overnight with 974 lots/tonnes trading over WMP and 70 lots/tonnes trading over SMP.

Aug16 traded the first 200 lots of WMP overnight with 100 lots trading at $2,270, up $25 from its last trade a day earlier and the remaining 100 lots at $2,280. Sept16 traded the next 99 lots, as 98 lots traded at $2,560, up $15 from its last trade on Tuesday, while one lot traded at $2,545. Oct16 traded the next 345 lots, the first 40 lots at $2,700, up $50 from its last traded price from Tuesday, the next 150 lots at $2,650, and the remaining 155 lots at $2,680. Nov16 traded the next 180 lots at $2,690, unchanged on its last traded price from Tuesday. Dec16 traded the next 100 lots, at $2,680 , down $20 from its las traded price of $2,700 from Tuesday. Jan17 traded a further 190 lots, 40 at $2,650, up $30 from its last trade from last Friday, 100 at $2,700 and the remaining 50 lots at $2,710. Apr17 traded the remaining 50 lots at $2,790, up $30 from its last traded price from its last traded price of $2,760 from the previous day.

All 70 lots of SMP traded over the Jan17 contract as the first 20 lots traded at $2,330, up $80 from its last traded price from Monday, the next 30 lots trading at $2,350 and the remaining 20 lots trading at $2,360.

The NZX milk futures Sept17 contract traded 22 lots (132,000 kgMS) overnight settling at NZ$4.65, up NZ$0.05 on its last settlement price.​

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