Morning Dairy Comments, 09/22/2015

Tuesday, September 22, 2015

Robert Chesler


Please find below a link to our annual EU Dairy Outlook and Risk Management Seminar, October 20-21, Amsterdam


General Market News

· Tax-loss selling could prolong stock market correction

· Chinese Premier Xi Jinping visits USA starting today, landing in Seattle

· Chinese composite index closed up 0.9%, on its longest winning streak in a month

· China arrests U.S. citizen on spying charges

· U.S. S&P & Dow futures much lower this morning as mining stocks lead the way lower in Europe

· Former peanut executive sentenced to 28 years for covering up deadly salmonella outbreak

· Scott Walker quits Presidential race

· Volkswagen falls 20% after setting aside $6.6 bln to correct emission issues amid scandal


Class III, Cheese, and Whey

Yesterday saw 4th quarter 2015 class III prices fall 25 cents on average to close at 15.50 prices not seen since early 2014.  Technically we are oversold but still trending lower- a contradiction not new to dairy as oversold markets often signal strength of trend.  The "neutral" milk production report and lower spot today has given the bears renewed fervor.  The spot block/barrel spread narrowed by 3 ¼ cents but still extremely wide at 11 ¼ cents.  The weakness in blocks pushed prices lower as the market will be expecting additional pressure today. It's hard to imagine a scenario in the next 7-10 days in which barrels climb to correct the spread. We look for the work to come out of block price pressure.

4th qtr 2015 class III


Most of the cheese futures weakness was centered in the 4th quarter closing down 3.4 cents to 1.68.  We did see whey inch higher with 12 contracts trading in December pushing prices up 4.4%.

***Cold storage will be released today at 2 pm central.  We are forecasting American cheese to be up 5.3% YoY and total cheese to increase 8.9% YoY.

We expect a soft opening in both class III and cheese and a steady open in whey

Spot Session Results











DN 5 







DN 1 ¾














UP 3 ¾




Class IV, Nonfat, and Butter Futures

Nonfat finished higher yesterday with the 4th quarter actually eclipsing the 100 day moving average for the first time since March.  This month has seen us recover from august lows that were sub 85 cents on average for the last quarter of the year.  Much of the recent strength comes as NZX futures are still pricing the stronger GDT auction from last week. 

4th qtr 2015 Nonfat


Butter futures weren't as keen to rise as the spot market with the 4th quarter finishing .508 higher on the day. 

The chart below is a combination of two charts.  The yellow area is the front month butter continuation chart adjusted 30 days in advance of expiration (the last month of trading in the front month futures tends to slow dramatically as we get deeper into the month; therefore, we adjust 30 days before expiration to eliminate this skewing).  The blue area is spot cash butter. 

Interesting to note the butter futures have been running at a premium for most of 2015 but has been overtaken by spot in September.  Immediately we can see that futures chased spot higher last year up and until the precipitous drop in September.  Is this the start of a long spot driven rally culminating in new all-time highs for butter?  This isn't 2014 and fundamentally we are in a significantly loftier place.  Cold storage is expected to show a YoY increase in butter stocks of 30.4%.  We are also seeing cream become more readily available as we see ice cream demand dip seasonally and higher component values coming off the dairies.

So although we see a 2014 rally driven by spot I don't expect that to be the case this year.  The time frame is right for a top and although we could see spot rally towards 3.00 I would caution against being to euphoric. 


We expect a firm opening in class IV, higher nonfat and butter.


The grains finished higher today as funds seemed to be pushing the market probing for stops.  Soybeans also had the added heat of expectations of a large China purchase announcement this week.  Wheat in all of its coattails glory finished the strongest up 10 cents on the day.  Corn and soybeans will continue to trade in a whipsaw fashion until we get more harvest data.  I have heard some people discussing record corn yields to come.  There is a little discussion in the wheat market as S. Russian wheat has come dryness.  The grains are going to continue to struggle as we saw the dollar make another strong move higher yesterday.

Expect the grains to open lower but in a quiet market the funds could push them into the green again as occurred yesterday and provided some new technical buy signals

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