Morning Dairy Comments, 09/09/2016

Friday, September 09, 2016

General Market News

· U.S. jobless claims fall as labor market remains strong

· Oil heading for first rise in 3 weeks on OPEC hopes, U.S. stocks

· Fed’s Rosengren sees ‘reasonable case’ for rate rise

· New Bord Bia campaign to promote Irish dairy to 33m Chinese online shoppers

· Killing off American cows to keep milk prices high



Class III, Cheese & Whey

Class III and cheese futures opened lower yesterday on follow-thru selling and never recovered amid spot call weakness. Blocks closed 2.00 cents lower at $1.70 while barrel cheese fell 5.00 cents intraday before finishing 4.00 cents lower at $1.62. Although multiple buyers stepped in for barrel cheese in the low $1.60s, the trade became concerned about steep futures premiums yesterday and nearby 2016 long-liquidation ensued. Overall, the cash market for cheese seems to be best characterized as “in balance” this week as available fresh product is meeting “value buying” cash interest. 9 Loads of block cheese and 19 loads of barrels have traded this week.

It has been a while since we updated you on the World Food Price Index, but the Food and Agriculture Organization (FAO) reported yesterday that staple food prices rose nearly 7% in August. Increases in the price of dairy, veg oils and sugar are key contributors to the firming.

For the week ending August 27, dairy cow slaughter under federal inspection was up 2.04%, at 55,000 head, compared with the same period the previous year. Year-to-date slaughter levels are 1.4% lower than 2015 levels, with 1,916,600 head slaughtered.

The Central Mostly Dry Whey powder price was up 1.00 cent from the previous week at 30.50 cents, while the Western Mostly price was steady at 32.13 cents.

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



Class IV, NFDM & Butter

Firmness during the spot session couldn’t support NFDM futures yesterday. Spot NFDM may have overstepped its bounds upward by eclipsing the 90 cent barrier. For the past 2 weeks talk around the physical market has been of loads being offered at 90 cents. Buyers seemed to take a step back at that level and possibly for good reason. NDPSR has not reported an average weekly price of 90 cents or above since October of 2015. Not much has changed since then. Sure NFDM production has been declining vs. last year, but there is still plenty of old production being offered.

Spot butter’s persistence in the low $2.00/lb. are starting to wear on futures. Throughout butter’s now 3 week trend lower, the Oct and Nov futures contracts have held a step premium to spot. That premium significantly eroded yesterday as an unchanged spot was met with 3 ¼ cent loses in Oct and Nov. This was not on light volume either as 439 contracts traded; increasing open interest by 302. Option volume was skewed in favor of calls. Below is a chart of weekly NDPSR butter volume. It shows how historically lows sales have been for this time a year. Low volume plays into the rhetoric of end users having already made purchases in anticipation of higher prices.


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


Corn contracts pushed above technical resistance levels during yesterday’s session as the Average Trade guesses were released showing the 16/17 yield estimated at 173.4 bu/acre vs. the USDA’s August forecast of 175.1.  Funds were credited with buying 8,000 contracts on the day. Stories of sub-$3.00 corn continue to mount, but price action overall is firm this week. End-users ought to make sure they have some coverage of new crop corn.

Soybeans closed out yesterday’s trading session with small gains as China reported in had imported 7.67 mmt of soybeans in August.  China’s imports for the Oct-Aug time frame are estimated at 76.03 mmt, marking a strong year over year gain for 70.19 a year ago. The Average Trade Guesses estimated that Brazilian soybean acreage has increased by 3% while matching the USDA’s August projection of their soybean production reaching 103 mmt.  Funds were thought to have purchased 1,000 meal contracts while selling 3,000 soybean futures. End-users ought to make sure they have some coverage of soybean meal.

We look for grains to open modestly lower this morning.



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