Morning Dairy Comments, 09/01/2016

Thursday, September 01, 2016

General Market News

  • Senator Schumer calls for action to curb Canada rules on US milk imports
  • Global shares snap losing streak as oil ends its decline
  • California Gov. Brown announced climate plan with $50 million aimed to reduce methane from livestock
  • Wheat prices end August at a decade low
  • Study says pizza, not money, boosts productivity at work

New-Crop Export Sales Charts
Thursday, September 01, 2016



Class III, Cheese & Whey

The Class III spot equivalent price started yesterday trading around $16.00/cwt. before falling 23 cents to $15.76/cwt after blocks moved 3 cents lower during the spot session. Futures hardly flinched, a common depiction of their response over the past several trading days. The chart below shows the Class III’s forward curve. The lowest point (Jan 2017) sits at $15.79/cwt. With Jan still being 4 months out, the spot price is of less importance. What is important to note is that during the bear market to start 2016, spot was consistently at a discount to futures. It was expected and proved correct that futures would come down in line with spot. Today the market feels different. As much as we sift through the fundamental data and chart technical indicators, this market is just as much about the physiological.
Although it would make rational sense for nearby futures to move lower – for futures to catch up with spot pricing – after last week’s rout to the downside, markets are not always very rational. Sell-side pressure has subsided over the past several trading sessions as market consolidation has calmed nerves. The market has consolidated as traders adjust their positions (“consolidated” is really just a fancy word for describing indecision in the market that results in a choppy up and down – sideways – trade). For 2016 contracts, producer selling is evident, but lighter than it was a week ago. Speculative sellers have been taking profits by buying back short positions. Commercial buyers are not super aggressive, but there seems to be some Q4 business yet to be done. We see spot pricing as perhaps having overshot the mark to the downside as we start the month of September and we wouldn’t be surprised with the spot market moving back over $1.70 after the Labor Day holiday.

This afternoon we’ll get another look at dairy product production in the July Dairy Products Report. Our expectations are below:

  • American cheese output to be down 0.7% from last year at 394.5 million pounds and 2.04% lower than the previous month.
  • Other cheese, on a year-over-year basis is forecast to rise 0.6% to 609.7 million pounds. On a month-to-month basis, other cheese will likely decrease 1.3%.
  • Total cheese production is forecast at 1,004.2 million pounds, 0.1% above 2015 levels but 1.6% below the previous month.

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



Class IV, NFDM & Butter

Butter futures moved modestly lower yesterday and trading volume registered at just over 100 contracts as many contract months trade at or very close to recent trading lows. Much of the day’s weakness came around after the spot market saw renewed sell side interest and finished down 3 cents to $2.08. If you just paid attention to the closing price, however, you would have missed the fact that spot traded down a nickel to $2.06 intra-day and finished off its lows. Although we could make a case for cash butter moving below the $2.00 level, big numbers like $2.00 typically carry with them the burden of huge psychological support. Spot butter is also trading just above major trend-line support as well (see below). If we’re able to break beneath trend line support eventually this year it may mean a more long-term shift in butter pricing overall.

Weekly Spot Butter Chart


While spot butter looks precariously close to edge of a cliff, NFDM has been riding along at depth for some time now. The ho-hum sideways trade continues to tell the same story: nothing to see here. And that can continue as we head into September. But we’re watching powder closely as a global skim story could develop over the next few months. We don’t have that story yet, but spot NFDM appears to be biding time before breaking out to the upside. Should this happen, $1.16 for next year may look quite a bit less expensive than it does today.

Weekly Spot NFDM Chart


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


It was a mixed day for corn yesterday, with the nearby September contract being the only month deviating more than 1 cent from unchanged. A ½ cent move higher move brought the nearby contract to 3.02, a penny off the low. The $3 mark is a big physiological barrier. Breaking it this far out from the heat of harvest could mean drastically lower prices come October. However, continued wet weather could cause crop ratings to come off a bit due to disease. We look for a bounce on corn from current levels. End-user ought to be working hard to secure pricing on at least a portion of new crop needs.

There is no doubt about it - August has been a great month for soybean development. Futures settled 5-7 cents lower yesterday, and experienced further weakness in the overnight. Export sales come out this morning. Sales have been strong as of late for beans, and are estimated to continue that way this morning.
Sometimes a picture is worth a thousand words. Or just a few will do. Protein levels are some of the cheapest since spring. If you listen to the reports, prices could get cheaper still. But let’s keep things in perspective as we start a new month, shall we.

December Soybean Meal Daily Chart
Early calls for Corn and Soybeans are 1-3 higher and Wheat 4-6 higher. 


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