Morning Dairy Comments, 09/23/2015

Wednesday, September 23, 2015

General Market News

· USDA extends deadline for MPP-Dairy enrollment deadline to Nov. 30

· Eurozone PMI for Sept. misses estimates, falls to 53.9

· China's factory sector shrank at fastest rate in 6 ½ years in September




Class III, Cheese, and Whey

Both Class III and cheese futures largely shrugged off another leg lower on the spot market and temporarily put the brakes on downside momentum as the spread between Blocks and Barrels continues to correct. While still historically wide, outside the normal 3-5 cent differential, the spread between the two remains at 8 ½ cents after converging 4 ¼ cents yesterday.

It appears that the domestic market remains flush with Barrels and if that remains to be the case then we would expect more pressure on spot prices and can chalk up yesterday's pause in the futures to be just that – a pause. Granted, the market is oversold and has tracked lower for the entire month of September, however as we all know dairy markets tend to trend with conviction, and at times with impressive stamina, lasting far longer than one would think. Nevertheless, yesterday's performance could be the first hint that sell side interest may be looking to head to the locker room for a break as futures were quite resilient in the face of spot pricing that appears headed for a challenge of the $1.50 level. Traders may opt to hang tight and wait to see how that possibility plays out before jumping back in with both feet, one way or the other. Also consider that the dry whey market appears headed for an upside retracement and added to the Class III effort yesterday.

The latest cold storage tally does hold the potential to cast an icy glaze over upside potential as total cheese stocks logged a counter-seasonal 12.1% increase from year ago levels and a 0.5% uptick from last month (see chart below for a full breakout). That said, we would view these numbers more as justification for the recent slide lower and not necessarily as a catalyst for continuum.


Agricultural Secretary Tom Vilsack extended the enrollment deadline for the MPP program from September 30th to November 20th, citing that the original timeframe coincided with the fall harvest and that the additional seven weeks will help in the decision-making process for utilizing the MPP program in 2016.

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

Spot Session Results











DOWN 4 ¾  







DOWN 1 ½ 







UP 5 ¼  







UP 7 ¾ 




Class IV, Nonfat, and Butter Futures

Bullish forces remain intact for the Class IV market as spot butter continues its rapid ascent coupled with NFDM futures tracking higher as well. It was an interesting trade we saw yesterday on both counts as butter futures were yet again not inspired to jump aboard the spot rocket, which traded 7 ¾ cents higher and now sits at a frothy $2.8325, covering the gap left on the chart from back in October of 2014 (as indicated by the black arrow on the chart below) and within striking distance of the $3.00 mark. Nearby butter futures did post modest gains however contracts through August 2016 remained under pressure and finished in the red. Cold storage numbers did shed some light on the current bullish dynamic we have witnessed of late, however justification for current price levels seems a bit thin as stocks relatively adequate near 210 million pounds.

Spot Butter~Weekly


Early strength in the NFDM futures faded as the session wore on as sellers stepped in and took values sharply off the intraday highs on solid volume, leaving some technical signals that would suggest that the rally is likely running out of gas. The November contract left a nasty looking tail on its chart, which typically emboldens the bear camp (see chart below). As it stands, the recovery off the lows has been impressive in light of current fundamentals which would also suggest that upside momentum will likely be met with stiff resistance as was the case yesterday.  The CWAP for the week ending September 18th posted at $0.8475, up $0.0587 week over week with sales estimated at 10,854,124 pounds, down 14.6% from the week prior.

November NFDM~Daily


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

EU Dairy Quotes



It was turn around Tuesday for the grain markets as harvest pressure, broad based commodity selling and a strong greenback all contributed to price weakness. All said and done, corn remains in a range bound trade and did manage to find support at technical levels while beans look weak, with the possibility of accelerated moves to the downside threatening. At this juncture, the bulls need a story and one with substance at that or attempts to rally will likely be muted until the harvest picture comes into clearer focus.

We expect the grains to open higher this morning, with corn up 2-4 cents, soybeans up 5-8 and wheat up 7-10 cents.

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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