Morning Dairy Comments, 08/22/2016

Monday, August 22, 2016

General Market News

· Reports out that Yellen will say we are ready for a rate hike in Jackson Hole this week

· USD higher overnight after getting pummeled last week, most things lower this morning with crude oil down over $1.00 already

· Louisiana flooding called worst US disaster since 2012

· Milk slump tough for farmers just starting out in NZ:



Class III, Cheese & Whey

Friday’s spot trade showed blocks and barrels remaining even at $1.8650. The Class III futures settled slightly lower for the day, although they made some solid gains last week on the back of a resilient cheese market, and whey futures gapping higher. Overall positive global sentiment may be spilling into our markets.  

International prices for cheese may also be supporting the domestic market. Spot pricing for EU cheddar is quoted around €3,200/mt or $1.64/lb, and pricing for Q4 is in the €3,300 range. Just back in March EU cheddar prices were in the €2,200 range or around $1.12. Most of the move can be attributed to more milk being earmarked to SMP production destined for the EU’s intervention. Cheese production was neglected, and the low prices spurred increased exports with the weak Euro, Jan-June 2016 EU cheese exports tallied 392,152 or up about 14% from the same period in 2015. The exports are impressive given that Russia is still not buying EU origin. Although this could also be viewed as merely EU taking market share from US exporters especially in the Asian and Middle East markets.

The EU whey market has also awakened. Spot sweet whey powder for feed is quoted at €770/mt or 39 cents a pound. Less cheese means less whey. We combine this with a strong bid from Chinese feed buyers for permeates, and we have a bullish outlook. China’s total whey imports for Jan-June 2016 total 240,005mt up 16% from 2015’s pace. US WPC exports to China are up 12% for Jan-June at 59,199 mt, this may reflect a healthier demand from the infant formula markets.

The Central Mostly whey prices moved 2 cents higher last week to $0.2850 while Western mostly prices were up ¼ cent to $0.30 still at a substantial discount to the EU feed grade prices. Also the Central/West mostly lactose prices were up 2 cents to 30 cents. The 2017 Dry Whey futures strip gapped higher last week, from 36 cents to 39.83 cents which can explain most of the firmness on the deferred Class III futures. 

Friday’s milk production report showed a 1.4% increase for the 23 states. See the US milk production charts and tables below. The USDA’s Cold Storage Report will be released at 2pm Central today. We are expecting total cheese inventories in July coming in 8.7% over 2015 to 1.257 billion pounds.

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

October 2016 Class III Milk:







Class IV, NFDM & Butter

​The spot NFDM market fell ¾ of cent to 85 ¾ on 2 trades and 3 offers. Overall the CME has seen a bunch of older product changing hands as cash and carry trades are being unwound. Although there has been plenty of product looking for a home as cheap condensed skim finds its way to the driers out of the central and east. With schools coming back in session that has helped balance the condensed skim market. Mexico buying has been in a lull lately although we expect another wave of buying over the next few months.  

Spot butter edged another penny lower on Friday to $2.19 on 4 trades. The cream markets is steadily supplied. Western churns are selling cream to Class II users, and are slowing butter production. The priority is switching from bulk to print butter production to meet Q4 contracts. Butter stocks in the central and west are more long which is contributing to the softness in the market.  June’s total domestic conventional fluid milk sales were down 1.8%. Conventional whole milk was up 4.6%, while skim milk was down 12.9%.

We expect NFDM, butter & class IV to open firm


The grain markets closed out the week quietly with corn prices slightly higher, +1.75 cents to $3.4375, soybeans slightly lower, -10 cents to $10.045 and wheat up ½ a cent to $4.4475. Weather looks to be mostly cooperative to finish out the season with normal rainfall’s projected for the balance of August and September which should finish out the season nicely for soybeans. Seasonally the market tends to rally between now and early September before succumbing to harvest pressure. Following the Aug USDA report this looks pretty likely though one has to wonder just how far the market will let things go given the massive projected carryout for corn and wheat in particular. The Pro Farmer tour starts this week so we should see some expected yields roll in today and throughout the week with the final announcement coming Friday afternoon after the grain close.

We look for corn and wheat to open slightly higher, soybeans slightly lower. 



UK milk collections for the first 13 days of August

AHDB data showing daily milk collections for the first two weeks of August indicate that while milk collections continue behind last year, the extent of the drop in production is easing slightly. Collections for the period August 1st to August 13th totalled 495.4kt, down 6.14% on the same period last year. Daily seven day rolling average milk collections were as much as 7% behind last year at the start of the month however this gap narrowed to 5.9% behind last year by the 13th of August. If this trend is realised for the remainder of the month we estimate UK collections for August would total 1.18 million tonnes, 5.8% behind the 1.25 million tonnes reported by Eurostat for August 2015. This would put the season to end of August down 372kt, just under 1.5 weeks collections at current levels.

US milk production for July

US milk production continued on the up in July totalling 8.13 million tonnes, up 1.42% on July 2015 and 3.58% ahead of the three year average for July collections. Cumulative collections for the calendar year to date total 56.84 million tonnes, 1.62% ahead of the same point last year. Collection figures for June were also revised upwards, with June collections totalling 8.07 million tonnes, up 1.57% on last year, as opposed to the 8.06 million tonnes originally reported for June. An increase in herd size and milk produced per cow were the drivers behind the increased production in July. The US dairy herd increased from 9.31 million head in July 2015 to 9.33 million head last month while milk produced per cow was also up, totalling 871 kg per cow versus 860 kg per cow in 2015.

Milk production for the 23 major milk producing States in the US totalled 7.63 million tonnes, which is up 1.4% on July 2015. Again it was increased herd numbers and increased production per cow that drove this increase. Cow numbers in the 23 States totalled 8.65 million head, compared with 8.63 million head a year earlier. Milk production per cow in the 23 States totalled 883 kg per cow, the highest production per cow recorded since the 23 state series was introduced in 2003 and 11 kg more than that produced in July 2015.

EEX Futures

A combined 145 lots (725 tonnes) traded on EEX on Friday with all the activity focused on Q4 2016 SMP. Oct16 traded 60 lots with its first 20 lots at €2,020, unchanged on its last traded price from the previous day and the remaining 40 lots trading at €2,012. Nov16 traded the next 50 lots, the first 20 of which traded at €2,020, down €10 from its last traded price of €2,030 from the previous day and the remaining 30 lots trading at €2,022. Dec16 traded the final 30 lots at €2,036, down €4 from its last traded price of €2,040 from last Wednesday.

A combined 374 lots (1,870 tonnes) traded on EEX last week with 155 lots (775 tonnes) of butter and 219 lots (1,095 tonnes) of  SMP.

NZX Futures

400 lots/tonnes traded on NZX overnight with all lots trading over Q4 2016 SMP. Oct16 traded the first 100 lots at $2,330, down $30 from its last traded price of $2,360 from last Friday. Nov16 traded the next 100 lots at $2,410, also down $30 from its last traded price from $2,440 from last Friday. Dec16 traded the final 200 lots as the first 100 lots traded at $2,480, down $20 from Friday’s last traded price of $2,500, and the remaining 100 lots down a further $10 at $2,470.

The NZX milk futures Sept17 contract traded 10 lots (60,000 kgMS) settling at NZ$5.10, unchanged on its last settlement

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