Dairy Comments, 11/17/2016

Thursday, November 17, 2016


General Market News

· USD continues to run to the upside albeit with a slightly smaller gain of ~200 points yesterday

· Crude oil prices held relatively firm in the continued face of a stronger dollar amidst reports from AAA that this will likely be the busiest driving holiday in some 10 years in the US

· Yellen says interest rate hikes could come relatively soon

· Saudi Arabia hopeful crude output deal can be reached

· ECB says they are primed for stimulus boost if needed

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Class III & Cheese

The class III & cheese markets are waiting with bated breath for something, anything to happen on the spot block market. Yesterday all of the action, and there was quite a bit of it, came in the barrel market. Prices continue to move lower for the barrel as they dipped 3.25 cents on good volume of 13 total trades and the market unfortunately remains at a standstill because of the decline on the barrel with the block holds steady. The spread between the two markets now sits over 20 cents! We haven’t seen the spread exceed the 20 cent mark since all the way back to May of 2013!

Futures prices traded to over 20 cent gains early in the session as the longer the block stays elevated the more likely it is that NDPSR will catch up to the current spot price and that has kept some upward pressure on the nearby months. At settlements prices were mostly lower, only December, +4, was higher as November through July of 17 finished steady to 8 lower outside of Dec. Volume was just shy of 1,000 contracts on the day.

NDPSR pricing offered a bit of a bullish push yesterday afternoon and will likely lead to a firmer market pre-spot this morning. The block price jumped by nearly a dime, 9.51 cents, to $1.7347 and barrels nearly matched the gains, +8.94 cents, to $1.6852. If NDPSR can keep up that size of gain, we may be a bit underpriced in the nearby contracts of Nov & Dec.

Cheese volumes were firm yesterday with over 500 trades taking place as those contracts moved opposite of class III settling steady to +0.009 cents higher on the day. Whey was the reason for the divergence between class III and cheese settlements as settlements there were -0.05 to -0.825 from November all the way out to September of 2017. Volume was firm here as well with just shy of 200 trades, as we approach the 40 cent mark the futures are hesitant to continue to hold a premium to the physical pricing. NDPSR this week was 36.70 cents a gain of 0.99 cents from the prior week. Today we get DMN reports.

Our estimates for milk production being released tomorrow are included below.

We look for Class III and cheese to open firm, dry whey steady to higher.

 

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Class IV, NFDM & Butter

The tightness in cream seems to have played out on the spot market yesterday as we saw a gain of 5 cents on spot to $2.0300 and 3 loads were traded. The trading activity seemed to prevent futures from making much of a move yesterday however after some sizable movement has been seen there of late. Settlements ranged from -0.500 to +0.525 as volume was extremely light at just 33 contracts on the day. Futures and the spot market both seem to indicate a comfort zone right around the $2.00 mark for now and we tend to believe it will be difficult for the market to separate itself too much from that price for the time being at least until we figure out what our true balance is once we move past holiday demand. NDPSR showed butter up 2.15 cents to $1.8898.

NFDM prices saw light volume and price movement of late but they mostly followed a recent trend, moving higher just before and the day of GDT but pausing and mostly moving lower the few sessions after the GDT. Settlements were mostly unchanged but +0.100 for December, -0.150 for February and -0.225 for March as volume was just over 50 trades. DMN prices will be released later today which may give us some insight but early reports out of the EU have SMP prices supported on the heels of GDT and NZX prices have been steady to higher as well, some of that strength will likely have to spill into the domestic market. Weekly NDPSR was actually down yesterday by 0.21 cents to 90.88 cents. Not a sizeable decline by any means but it did come on lighter volume than the previous week which is usually a sign of lower prices ahead.

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

Grains

The grain markets couldn’t get out from the shadow of a firmer USD yesterday as prices settled slightly lower across the board. Corn was down 3 cents to $3.3850, beans down 3.75 cents to $9.8575 & wheat was down 2 cents to $3.97. News is relatively light so today’s export sales will be closely monitored as we need to continue to see strong demand to avoid prices falling amidst the seemingly unstoppable gains in the USD.

We look for a steady to 3 higher opening across the board in grains today.

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German, French and EU milk collections for September - see report attached for full details

German milk collections fell behind last year for the fourth consecutive month in September, this time by the biggest margin seen so far this year. September collections totalled 2.49 million tonnes, down 3.02% on last year representing the lowest volume of milk collected in Germany in September since 2013 and the lowest volume of milk collected in any month since November 2014. September’s collections also saw milk volumes down 0.49% on the three year average for the month, the first time monthly collections dropped below the three year average this year. Cumulative German collections for the year to date now total 24.51 million tonnes, just 1.87% ahead of last year.

French milk collections fell sharply behind last year in September, down 7.30% on last year to 1.80 million tonnes, which is also 4.31% on the three year average for September and the lowest single month of milk collected in France since September 2013. Cumulative French milk collections for the year to the end of September now total 18.89 million tonnes down 1.04% (198kt) on the same point last.

EU production in September was down 2.80% year on year, posting the fourth consecutive month that EU production has fallen behind 2015 levels, but remain 0.14% ahead of the three year average for September collections. Cumulative EU collections for the year to the end of September now total 116.93 million tonnes, 1.72% ahead of last year, down from 2.26% a month earlier.

Dutch milk collections for October

Further Eurostat data released yesterday showed Dutch milk collections in October totalled 1.15 million tonnes, up by a modest 1.97% compared with the same month last year versus the 3.91% increase observed a month earlier and a far cry from 21.69% year on year increase reported in February. October’s collections remain 9.61% ahead of the three year average for the month and the biggest volume of milk collected in the Netherlands ever recorded for October. Cumulative Dutch collections for the year to the end of September now total 12.01 million tonnes, 9.0% ahead of the same point last year.

EEX Futures

A combined 62 lots (310 tonnes) traded on EEX yesterday with 50 (250 tonnes) lots trading over butter and 12 lots (60 tonnes) trading over SMP. Feb17 traded the first two lots of butter at €4,250, up €20 while Mar17 traded the next lot at €4,200, up €75. Apr17 traded the next 14 lots of butter, the first three at €4,090, the next lot at €4,098, eight lots at €4,100 and the remaining two lots at €4,175. May17 traded a further five lots at €4,065, up €65. Jun17 traded the next three lots, one at €3,998, up €13 and two at €4,000. Jul17 traded a further 13 lots at €3,950 –€4,000. Aug17 and Sept17 traded six lots per month, each trading one lot at €4,000 and five lots €3,950.

SMP traded its first two lots over the Nov16 contract at €2,075, unchanged on its last traded price from Friday. Jul17 and Aug17 traded five lots per month, both at €2,175.

NZX Futures

A combined 1,368 lots/tonnes traded on NZX overnight with 1,138 lots trading over WMP, 220 lots trading over SMP and 10 lots trading over AMF. Dec16 WMP traded the first 50 lots at $3,480; Jan17 traded the next 58 lots at $3,530; Feb17 traded 500 lots also at $3,530; Mar17 traded the next 300 lots at $3,550; Apr17 traded 100 lots at $3,570. Jun17 and Jul17 traded the next 50 lots per month at $3,610 and $3,620 respectively while Aug17 traded the remaining 30 lots of WMP at $3,630.

SMP traded the first 20 of its 220 lots over the Dec16 contract at $2,640. Mar17 and Apr17 traded 100 lots per month at $2,790 and $2,815 respectively. AMF traded the final 10 lots over its May17 contract at $5,480.

A combined 54 lots traded over the NZX milk futures overnight with the Sept17 contract trading 48 lots (288,000 kgMS) and settling at NZ$6.15, up NZ$0.05 on its last settlement price. The Sept18 contract traded a further six lots (36,000 kgMS) overnight at NZ$6.22, up NZ$0.02 from its last settlement price.


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