Morning Dairy Comments, 09/12/2016

Monday, September 12, 2016

General Market News

· Pakistan looking to improve agricultural exports to Russia

· Selloff gathers pace as stimulus pullback fears deepen

· OPEC points to larger 2017 oil surplus as rivals keep pumping

· ECB proposes plan to clear Europe’s bad debt



Class III, Cheese & Whey

Class III and cheese futures markets perceptibly slumped into the weekend under lighter volume last Friday. Just 746 class III and 143 cheese futures traded hands as prices showed modest losses into 2017. Out of the past six trading sessions, class III and cheese futures by and large traded 3 up and 3 down.  So we start a new inning today and so far there’s little early indication of direction. Just 4 class III contracts traded and zero cheese contracts traded overnight. Market participants want to figure out what way the portly 10.5 cent block/barrel spread corrects.

Since barrel selling has appeared as the aggressor over the past week, thoughts of block weakness are alive and well. But it may not be so easy. Although barrel pricing has etched out price levels not seen since late June, the futures market may give us a better indication of downside temperament. Futures continue to run above spot equivalents, but it’s more about trading demeanor. The recent declines that gripped the futures market from Wednesday thru Friday of last week showed materially less volume day by day ending with Friday’s paltry volumes and weaker open interest. This is not the trading action of a market convinced of weaker prices to come for spot. This is the behavior of a futures market taking a breather.

Perhaps spot cheese ought to continue to move lower, but we’re not convinced of that right now. The market for cheese in the mid-$1.60’s to mid-$1.70’s seems reasonable to us at present. The market would seem to find some sort of equilibrium around those prices levels instead of something lower. So spot could dip here, but we don’t expect it to be long-lasting as U.S. demand ought to remain solid for now. Moreover, we’re much closer today to finding an export bid for cheese than we have been all year it seems. We’re not seeing that yet, but it’s on our radar. 
Dry whey has settled into a more sideways trade over the past week. Still well-supported, but gains are lacking as the market consolidates August gains.

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



Class IV, NFDM & Butter

The spot NFDM closed unchanged at 90 ½ cents on Friday with no trades. The Western mostly NFDM price ticked up 1 cent to 91 cents last week. The markets are slowly reacting to bullishness out of the EU and Oceania markets. US end users acknowledge the price increases but are generally not pressured to chase the market. The CME NFDM futures curve is at a decent discount to the EEX and NZX curves seen below. With the EU sitting on over 350,000mt of SMP in intervention the next leg higher may be modest. The Q4 NZX WMP futures are roughly $600 above NZX SMP futures. The Algerian tender wrapped up last week and reports are that NZ exporters won all of the WMP business of 30,000mt, and won some SMP. The EU exporters won the majority of the SMP business.


The spot butter market was down ¼ cent to $2.03 ¼ on 3 trades on Friday. The butter futures were fairly stable as there continues to be good two sided interest from buyers and sellers. Friday’s CFTC report showed that the commercial’s net position (blue line in chart on next page) in butter was virtually flat. This means there is nearly an equal amount of commercial buyers and sellers in the butter market. As you can see back in the Q4 of 2014 with an influx of export orders the net commercial position was up to 3,000 contracts.

Although the US butter price has been more stable lately, the rally in the global fat markets has been impressive especially in the EU where values are now priced at a slight premium to the CME spot price. The EU has exported 93,628mt of butter in Jan-June up nearly 36% from 2015’s pace.

We look for NFDM, Butter and Class IV to open mixed.




The grains markets will be awaiting plenty of fundamental news today with the USDA releasing their Supply/Demand estimates at 11AM Central today. See the estimates below where FCStone is looking for yields on the higher end of the trade’s estimates. Export inspections are also out at 10am central today.

Corn export sales released Friday showed 1.0933mmt for the 15/16 marketing year. While soybean exports showed 1.7768mmt for the 15/16 year.

Last week China was able to sell 947,000mt of 3.5mmt offered at $6.11/bu which is slightly above import parity. The Chinese government is debating about stimulating 10mmt of domestic demand from giving food subsidies to end users who choose to buy from the reserve. This is a small amount when we know their reserve program is close to 200mmt and the quality is likely inferior to imported corn as some product has up to 4 years of age.


We look for Corn, Soybeans and Wheat to open a few pennies lower this morning.


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