Morning Dairy Comments, 09/11/2015

Friday, September 11, 2015

Robert Chesler


General Market News

· Dairy farmers at the barricades

· New York state approves $15 minimum wage for fast-food workers

· China mulls trillion-yuan fiscal stimulus

· Japan weather bureau reiterates El Nino patter to continue into winter

· Coveney marks growing presence of dairy companies in US

· Fonterra forecasts NZ milk production decline


Class III, Cheese, and Whey

Class III and cheese have traded a rather light volume – mostly sideways trade – for the first full week of September. Futures were rather mixed yesterday as ho-hum spot cheese and weaker dry whey prices give pause to anyone watching butter continue to make new 2015 record prices. Seasonally production is declining, but we hear that milk is still widely available. The consensus has been that class III and cheese prices will continue to drift lower for now - fundamentally cheese doesn't appear to have much a reason to move higher right now. If butter can maintain lofty levels into October for longer than expected, however, all the bearish numbers or logic in the world may not be enough to keep cheese from a sympathy rally.

Looking forward, we find ourselves hearing more and more about the "Mega El Nino".   There is room for concern as the risk for drought becomes elevated in NZ.  For now there is plenty of product available and no signs of long-term trouble caused by El Nino.  In fact, for now the biggest threat to milk production in New Zealand is low milk prices. The markets will be closely monitoring any efforts to curtail production along with any El Nino affects.

The NDPSR report for the week ending September 5th reflected an average price for blocks at $1.73, a decrease of 1.4 cents from the previous week.  Barrels averaged $1.69 per pound, a decrease of 4.9 cents.  Dry whey averaged 26.9 cents, a decrease of 0.5 cents.

For the week ending September 5, dairy cow slaughter under federal inspection was down 3.4%, at 53,900 head, compared with the same period the previous year. Year-to-date slaughter levels are 3.7% higher than 2014 levels, with 1,944,300 head slaughtered.

Look for a mostly lower opening for Class III, Cheese and Dry Whey.

Spot Session Results


















DN 1 ½







UP ½







UP 6 ¼   




Class IV, Nonfat, Butter Futures

Butter values soared to a new 2015 high of $2.5350.  The return to fat is still causing ripples to U.S. spot butter prices and that is causing a demand for futures contracts well into 2016.  Buyers bought the available offers early yesterday sending prices limit-up (5 cents higher) in the first half of 2016.  While it doesn't seem like the buying is done and, in fact, could just be getting underway in 2016 where we established new contract highs yesterday, let's put things into perspective by noting that historically speaking butter prices top out in September.  This was the case last year, and looks to be the case this year.   While no two years are alike, the stock situation year over year has improved but the sting from last year's move is fresh in buyers mind.  But remember, shortly after reaching highs last year we saw a sharp move lower (see chart below). 

Spot Butter Weekly Chart


NDPSR for the week ending September 5th reflected an average butter price of $2.23, an increase of 0.8 cents from the previous week.  NFDM averaged 75.5 cents, an increase of 1.0 cent from the previous week.  

NFDM traded mostly lower yesterday despite a ½ cent increase in the price of spot NFDM to 88 cents.  The market seemed tired and without some immediate reason to bring prices higher we saw what looks like some long-liquidation or profit-taking as open interest declined slightly along with futures.  The markets are always skeptical when a pricing change occurs and NFDM.  Everybody is sifting through the data looking for some logical reason for the recent strength and they're coming up short. There is plenty of powder and plenty of lost export sales.  While the recent buy side strength in spot - and to some degree futures – appears to be slowing, we want to say that powder can go to a buck.  It's hard to make an argument for powder to sustain $1.00 for very long, but it can go there.
The Dairy Market News Western Mostly NFDM price was up 4.00 cents from the previous week at 79.50 cents per pound. Last week's CA Weighted Average price was 77.52 cents, up 0.54 cents from the previous week.

We look for a lower opening for NFDM and a mixed trade for Butter and Class IV.


Grain markets got a slight boost yesterday ahead of this morning's USDA crop reports.  Many traders expect the USDA to reduce U.S. corn and soybean production but really don't expect that to happen in this report.  Nevertheless, traders adjust positions.  End-user buying also picked up slightly.  We've recommended that you have some coverage or physical ownership going into this report but that you keep some powder dry in the event the USDA serves up a bearish number and prices collapse.  If production and yields are reported lower than expected it would be bullish of prices and give end-users plenty of reason to get serious about clocking corn for 2016.


We look for a modestly higher opening for corn, soybeans and wheat this morning.

Unless otherwise noted, the posts on this blog should be construed as market commentary, merely observing economic, political and/or market conditions, and not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. or its subsidiaries. INTL FCStone Inc. is not responsible for any trading decisions taken by persons viewing this material. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. or its subsidiaries. Reproduction without authorization is prohibited. All rights reserved.

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