Morning Dairy Comments, 09/14/2015

Monday, September 14, 2015

Robert Chesler


General Market News

· OPEC cuts supply forecast for U.S. Oil

· U.S. dollar gains ahead of FOMC

· Labour will 'fight for Britain to stay in EU', vows Hilary Benn

· Germany imposes boarder checks amid migrant wave

· MOD Pizza aims for British Empire

· New Zealand dairy debt causes concern


Class III, Cheese, and Whey

The class III market registered a total of 800 contracts trading as contracts through March 2016 tallied losses of between 4 and 23 cents as the Barrel spot price plummeted 6.50 cents.  A majority of the trading volume, 502 contracts, was limited to the October and November contract months as traders pushed prices lower in coordination with the spot cheese performance.  The selloff within the fourth quarter contracts pulled the pack average down17 cents to $15.93, down 23 cents from the week prior.

Milk production on a national basis continues to trend mostly lower as temperatures and humidity impact cow comfort levels.  Exceptions to the trend can be found in Idaho, Utah, New Mexico and the Southeast as production has increased of late thanks to abating temperatures.   

The Class III market faces a series of head-winds that have prices breaking lower through levels of support that have held for the past month in nearby contracts, as exhibited in the 4th quarter pack daily chart below.


Domestic demand for dairy products on a whole looks to begin its holiday surge in the coming weeks and months prompting buy-side interests to address those still uncovered upcoming needs.  Yet looking beyond the domestic supply and demand situation the valuation of dairy products has fallen precipitously in previously months around the world.  While U.S. prices for dairy products on a whole have benefitted from strong domestic demand, avoiding the more perilous declines in value experienced by the EU and Oceania regions, once the holiday season has passed will U.S. consumers alone have the purchasing power hold afloat U.S. prices amid the overtly bearish global situation with foreign dairy products priced at steep discounts?   

The U.S. dairy cow slaughter under federal inspection for the week ending August 29th was estimated at a total of 53,900, down 1,100 (2.0%) from the week prior.  The year to date slaughter rate is estimated at 1.9443 million head, up 3.7% year over year.  Worth noting is that despite the overall decline in the national slaughter rate Region 9, which includes California, Nevada, Arizona and Hawaii saw a 1,200 head (9.0%) increase week over week to a total of 14,600 head.  The year to date slaughter rate for these specific states is running at an estimated 10.7% increase compared to the same period last year while the Midwest states of Region 5 including Wisconsin and Michigan have seen the year to date slaughter rate decline by 9%.  The inversion in the slaughter rates should be attributed to geographically specific profitability, or lack thereof, in the current environment of depressed milk prices.

Look for a mostly lower opening for Class III.

Cheese Futures

Cheese futures pushed lower as the sharp decline in the value of the spot Barrel jumped the Block/Barrel spread to 10.50 cents as contracts through June of 2016 settled between 0.4 and 2.6 cents lower on 379 total trades.  As with the Class III market the fourth quarter contracts fell to price levels unseen since the start of August, falling 2.13 cents lower Friday to $1.7270 with a week over week decline of 1.77 cents. The NDPSR pricing for the week ending September 5th logged the Blocks at $1.7309, down 1.41 cents from the prior week with sales falling by 13.4% to 11,353,213 pounds.  The Barrels price plunged 4.91 cents lower to $1.6864 while weekly sales jumped 33.6% higher to 12,430,387.

We look for cheese futures to open up lower.  

Spot Session Results


















DOWN 6 ½














UP 3





Dry Whey Futures

Dry whey futures closed out the week's trade with mixed pricing as contracts settled between 2.1250 cents lower and 1.2500 higher.  The fourth quarter pack average pushed 0.5417 cents higher to 24.9000, yet still managed a weekly decline of 2.1833 cents.  The NDPSR for the week ending September 5th posted with the price having fallen 0.49 cents lower to 26.85 while weekly sales were estimated to have dropped off by 40.6% week over week.  The weekly DMN dry products price for the central mostly midpoint slid a penny lower to 22.00 cents while the western mostly midpoint price dropped 2.00 cents to 24.00.

We look for dry whey prices to open mixed – lower in 2016.

Class IV Futures

Class IV prices settled between unchanged and 32 cents higher Friday primarily driven by butter market strength.  The Oct to Dec pack average finished the week at $15.27, up 15 cents for the day while gaining just 2 week over week.  The Class IV futures have benefitted from the recovery of the NFDM market and the meteoric rise in butter values, staging an over month long rally. 

We look for Class IV to open mixed.

Nonfat Futures

NFDM futures finished Friday's trading session with contracts settling between unchanged and 2.725 cents, closing near the lower end of the week's trading range.  The fourth quarter pack average shed 2.142 cents to settle at 91.325, down 1.958 cents week over week.  Weekly NDPSR pricing posted with a 1.04 week over week gain in the NFDM at 75.50 cents as weekly sales were estimated to have declined by 14.5%.  The CWAP for the week ending September 4th was reported at 77.52 cents, up 0.54 cents from the week prior while a whopping 68.42 cents lower than during the same week last year.  The estimated weekly sales fell 32.5% week over week to 12,432,388 pounds. DMN weekly prices for the central mostly NFDM midpoint gained 1.50 cents 80.00 cents as the western mostly midpoint price added 4.00 cents at 75.50 cents.

We look for NFDM futures to open mixed.

Butter Futures

Butter futures ended the week with contracts settling unchanged to 2.375 cents higher after yet another increase in the spot value, this time gaining 3 cents on the day to $2.5650.  The spot Grade AA butter has gained a total of 10.25 cents in the past week inspiring steep gains in the near dated futures.  The fourth quarter pack average added 0.509 cents Friday to close at 225.342, with a week over week gain of 4.350 cents.  The futures contracts though have not matched the magnitude of the spike in the spot price, lending some credence to the notion of butter prices having pushed beyond the supportive fundamentals at this time.  The NDPSR price for butter for the week ending September 5th revealed a gain of 0.84 cents to $2.2290 while sales were estimated to have increased marginally (0.6%) to 3,727,900 pounds.

We look for butter futures to open mixed – higher in 2016.

New Zealand

Fonterra announced Friday a steeper than anticipated 2-3% reduction in milk production for the 2015-16 season attributed in part to the increasing culling efforts of dairymen in such of better financial returns in the form of beef sales.  The potential impact of El Nino on New Zealand weather conditions is the other factor at play for milk production rates.  At current, the New Zealand's east coast is anticipated to bear the brunt of the El Nino conditions while the major milk producing regions of Taranaki, Waikato and Southland could face muted effects (these three production regions account for roughly 45% of all milk cows in the country).  

Forecasted volume for the impending GDT auction have been further reduced for the next twelve months as the forecasted decline in milk production and the shift away from the production of base milk powders are given as the cause.  The reductions in the volumes of WMP and SMP will account for the lion's share of the 22,050 MT decline of the coming year, 15,200 MT of that coming in the next three months which could provide additional underlying support to both NZ and U.S. powder prices in the near term.



The grain sector faced a volatile trading session to end the week as the USDA released its monthly crop report with the corn market drawing a majority of traders' attention.  The USDA lower the estimated corn yield by 1.4 bpa to 167.4 from the August report as anticipated, though the 40 million bushel decline to the 2014/15 carryout stocks coupled with the 101 million bushel decrease in production provided enough fodder to promote the rally in the corn contracts The December corn contract settled for the day up 12.75 cents to 387.00 while the March contract tallied a matching gain to settle at 398.25.  The soybean market shrugged off initial weakness to settle the day at or near unchanged, November contract up 0.25 cents with January unchanged, after the slight 0.2 bpa increase in yield.  The wheat complex was pulled higher on the strength of the corn rally as the only change from the USDA relating to domestic wheat was a 25 million bushel decline in the exports estimate.  The December wheat contract settled 7.00 cents higher to 4.85 while the March contract added 7.50 cents to close out the week at 493.50. 

Given the strong close on rather uneventful numbers, we expect a continuation to the upside for grains early today.  Although prices may settle down a bit in the coming days, we find it very difficult to make an argument for any new lows to be made this year.  It looks like harvest lows are now in.

We look for corn to open 2-4 cents higher, soybeans 5-8 cents higher and wheat1-4 cents higher. .

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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