Morning Dairy Comments, 10/07/2016

Friday, October 07, 2016

General Market News

· British Pound flash crashes overnight, spiking 6% lower in two minutes

· Crude oil tops $50/barrel as OPEC, non-OPEC producers plan informal meeting

· NZX milk futures fall below Fonterra forecast

· Australia’s dairy exports increase by 9.6% year over year



Class III, Cheese & Whey

Class III and cheese buyers responded enthusiastically to the three cent gain in the spot Barrel market with gains in nearly every contract month through December 2017. Dry whey futures also firmed after Thursday’s Dairy Products report, which lent support to class III. The fourth quarter Class III contracts gained 13-30 cents while the January through November 2017 months added 4 to 19 cents on just over 1,000 contracts traded.  While the price action of yesterday will be seen by some as a signal that the bearish tide has turned, the trading volume registered yesterday leaves something to be desired.

If this is truly the start of a larger shift in we would need to see better trading volumes, particularly into 2017, in the coming days/weeks. Of the 1,008 contracts traded yesterday, just 384 were executed in the 2017 months and just 26 in the July to December. Overnight there was a little more volume in 2017 but so far this rally can be attributed to short covering/minimal re-positioning in a market that is still rather choppy. 

Cheese futures spiked higher in sympathy to the spot session/Class III rally with more evenly dispersed trading activity. A total of 721 contracts traded on the day with half of those trades occurring in next year’s contracts. The strongest gains, ranging from 1.4 to 3.1 cents, were posted in the fourth quarter contracts while the gains in 2017 were more orderly and evenly dispersed. Today’s price action will ultimately be driven by the spot session, with fourth quarter contracts vulnerable early in the day to price declines while the 2017 months should remain resilient and firm.

Since last Thursday, the CME cheddar block price is steady at $1.5325. There have been no trades. The CME cheddar barrel price was up 0.50 cents at $1.4800 with 17 trades.

USDA cheese weekly stocks were up 1.2% from the previous week, but are 12.8% below last year.

The Central Mostly Dry Whey powder price was up 0.25 cents from the previous week at 31.25 cents, while the Western Mostly price was 0.87 cents higher at 33.50 cents.

For the week ending September 24, dairy cow slaughter under federal inspection was down 1.02%, at 58,200 head, compared with the same period the previous year. Year-to-date slaughter levels are 1.6% lower than 2015 levels, with 2,137,900 head slaughtered.
We look for Class III, Cheese and Dry Whey to open mixed.



Class IV, NFDM & Butter

NFDM trading interests were out in force yesterday, tallying a total of nearly 570 contracts traded, as the nearby futures contracts took the brunt of the selling pressure. The October through March contracts fell between 0.625 to 1.325 cents lower, with the downside pressures exerted pre-spot while the April through June contracts racked up gains ranging from 1.225 to 2.200 cents.  The recent price declines in U.S. sourced SMP has led to domestic product becoming the most attractive in the global marketplace, yet WMP prices are still over-priced compared to those of Oceania and Europe.  The forward curve provided sell-side interests with opportunities to capitalize on the price discrepancy compared to the spot value, accounting for some of the declines in the early 2017 contracts.  

The Dairy Market News Western Mostly NFDM price was down 0.50 cents from the previous week at 95.00 cents per pound. Last week’s CA Weighted Average price was 89.24 cents, up 1.81 cents from the previous week. The CME Grade A NFDM price is down 2.00 cents from last Thursday at 92.50 cents. There were 10 trades.

The nearby butter futures contracts slide lower early in the session prior to the spot session which resulted in the spot butter price falling to $1.8300, its lowest level since May 4th of last year.  U.S. butter prices continue to slip lower while world prices have moved higher as European butter has overtaken the mantle of the most expensive.  Whether or not butter values have fallen to a level at which end-users will begin to aggressively eat into inventories has yet to be determined, but with the holiday season swiftly approaching those few without coverage may view this latest stab lower as an attractive place to buy.  We look for Butter to open steady, NFDM lower and Class IV to open mixed.


After four days of gains, corn futures traded lower yesterday.  Export sales bested trade estimates for the old crop while forecasts for the new crop, yet speculative funds were estimated to have sold between 15,000-20,000 contracts throughout the day.  The overall trend remains sideways to higher even after yesterday’s sell-off, but harvest pressures are expected to provide still more headwinds in the short-term.

Interestingly, Brazil’s biotech commission announced this week an open the path for U.S. GMO corn shipments into the country to start during the 16/17 season.

Soybean futures ended the day with minimal gains as the exceptional exports sales report worked to counter the continuing prospects of the historically large crop yields.  Rains working their way through the central Midwest, expected to clear within the next two days, have hampered harvest efforts while the east coast states are facing the fallout from Hurricane Matthew.  Funds were thought to have bought 5,000 soybean contracts, 4,000 bean oil while selling 3,000 meal on the day. 

The wheat market tumbled lower as the reported export sales failed to impress, giving way to the pressures weighing on the corn.  Global wheat production has been aided by favorable weather in Australia and the Ukraine while Russia announced that the upcoming crop will reach record levels.  Funds were credited with selling 5,000 contracts on the day.

We look for Corn and wheat to open lower soybeans steady to marginally higher.



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