Morning Dairy Comments, 09/06/2016

Tuesday, September 06, 2016

General Market News

· GDT Auction today

· Saudi, Russia vow oil cooperation without agreeing to freeze

· Obama crashes G20 by warning Beijing of ‘consequences’ in the South China Sea

· Hanjin Group offers $90 million to help shipping unit

· Food Union launches export of dairy products to China

· The US Department of Agriculture's Agricultural Research Service (ARS) has launched a new smartphone app that forecasts conditions triggering heat stress in cattle.



Class III, Cheese & Whey

Barrels stole the show on Friday as they were bid up 1 cent to $1.64 on 15 loads trading. Blocks showed a steady bid at $1.68 with no offers. The block barrel spread is now back in line although we believe the anomaly of barrel tightness can continue to linger for longer. We may not see barrels at a 9 cent premium again anytime soon, but we can see them become a slight premium.

Class III and cheese futures were bid slightly higher as there were 1,308 and 180 futures trades respectively. Class III options volumes exploded to 3,944 contracts more skewed to the calls. The featured options trade was the Jan-Dec 2017 $16.50/$18.50 call ratio spread in which $16.50 calls traded 50x/month against the $18.50 calls, which traded100x/month. The $16.50 calls were bought for $3.25 total premium or 27 cents/month. Call us if you have any questions on how this type of trade works.

US exporters shipped 23,969mt of cheese in July this year, that’s down 6% from July 2015. Year to date cheese exports are down roughly 18% with the biggest hits taken from lost market share in S. Korea and Japan. The chart below shows the decline in “Fresh Cheese” exports which represents the mozzarella category. The US should be more competitive now with the spread between US and EU cheese prices narrowing considerably on the back of the EU price recovery.


Dry whey exports came in at 16,279mt for July, up 1% from last year. YTD dry whey is down roughly 15% from 2015 with 100,206mt sold this year.

WPC exports were up 18% in July at 22,934mt, YTD WPC exports are up about 15.6% as China has been buying a bit more. WPC exports to China are up about 12% YTD at 71,543mt. WPI exports were up 47% in July at 3,027mt. YTD WPI exports are down roughly 22%.

All eyes will be on the GDT auction event, which is already underway this morning. Expectations are for GDT to end up 6-8% today. We shall see, but such strength recently will likely underpin class III and cheese markets if realized.

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


Class IV, NFDM & Butter

The NFDM was bid up 1 cent to 87 cents on 3 trades. The futures have been firming lately on the back of firmer world prices. Today’s GDT event will give a good direction for the market. Last week’s EU quotes for SMP gave a good indication. German prices showed €1,905/mt up 35, France €1,850 up 80, and the Netherlands €1,890 up 40. An €1,890 price translates to about a 96 cent price with today’s FX rates. The US will continue to be competitive exporting with this in mind. 

In July the US exported 53,246mt up 31% from last July. YTD the NFDM exports are roughly flat to 2015’s pace. Exports to Mexico were 23,779mt up 18%, YTD exports to Mexico are roughly up 23%.

Butter showed more signs of weakness on Friday’s spot session with 1 trade settling down 1 ½ to $2.05. Futures were slightly lower in the front months although the 2017’s were holding steady as there seems to be good two sided hedging interests around $2.00. We expect that to continue to begin this shortened week.

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


FCStone released their September crop survey on Friday. We see a 175.6bu/acre corn yield, up from 175 from our August survey and 175.1 August USDA. Our soybean yields are at 50.1, up from 48.8 in our August survey and 48.9 August USDA.


Informa released their esitmates of 174.8 for corn vs 169.8 in August. Their Soybean yield came in at 49.5 vs 47.7 in August.

Our FCStone colleugues in Brazil are estimating slightly higher soybean acres for the 2016/17 season which is a slowdown compared to the strong growth of recent years. One reason is farmers will be more restricted to credit this year as banks are cautious. Secondly cost of production has risen substantially over the past few years. High internal corn prices in Brazil will also incentive some acres to switch to corn in relevant regions.

Friday’s CFTC report was interesting as the funds were revealed to only be short 174,489 corn contracts as of last Tuesday. The market expected them to be over 50,000 contracts shorter. The market estimated they bought an additional 19,000 contracts back on Thursday and Friday’s strength but we can see another revision in next week’s report. Funds were long 93,264 soybean contracts as of last Tuesday.


We look Corn, Soybeans and Wheat to open 2-4 lower.


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