Morning Dairy Comments, 09/24/2015

Thursday, September 24, 2015

"Everything has beauty, but not everyone can see". ~ Confucius        

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

General Market News

· "The nation exported a record volume of the fuel last month after already shipping unprecedented amounts of steel and aluminum overseas. The weakest economic growth since 1990 is sapping domestic demand for commodities, while refineries, mills and smelters grapple with excess capacity after years of expansion." FT

· Global stocks relatively soft as U.S. futures feel light pressure

· Norway buts interest rates

· German business climate ratings went up to 108.5 vs. forecasts for 107.9- these results tallied prior to VW's scandal

Class III, Cheese, and Whey

The Class III market is at a crossroads or maybe Yogi did say it best, "When you get to the fork in the road...take it." Either way, confusion reigns supreme at the moment as early weakness gave way to support after the spot session saw blocks move down to $1.59 while the hammer was put down on barrels, driving the price a nickel lower to $1.46, with 11 loads changing hands and widening the spread back out to 13 cents. The path of least resistance remained to the downside for cheese futures as the market largely settled in the red through mid-2016 on solid volume.

I suppose an argument could be made that the moderate support on the Class III side of things could be attributed to strength in the Class IV market, sympathy strength if you will, as both butter and NFDM exhibit bullishness, but at the end of the day the fate of cheese prices will likely lie with how the spot spread will be corrected. Will barrels do the heavy lifting? That seems to be a stretch with current fundamentals and price action, as we continue to see brisk volume being brought to the exchange.

On the outside chance that bidders do show up, look for futures to attempt carving out levels of support. That said, the likely play here will be for blocks to be pressured into converging the spread which could open the floodgates for continued downdrafts in the futures. Prices have remained resilient for the better part of the year, despite aggressive cheese production schedules and the slippage in the international market, but at some point conventional wisdom would suggest that the market should and would cave under the weight of that inventory.

The latest cold storage tally would corroborate the weaker price action which leaves the October Class III contract vulnerable to sharp selloffs and possibly a shot at a $14 handle in short order. From a technical perspective, the market is oversold and continues to languish below resistance levels. For a visual effect, we'll revisit the chart of the October contract which we featured earlier this month, warning of the possibility of a breakout to the downside if the aqua pennant wedge was violated. At this juncture, it's anyone's guess as to where support lies but as you can see there's a lot of open real estate below current levels.  

October Class III~Daily


For the week ending September 19th, the National Dairy Product Sales Report showed a decrease in the block price, to $1.7174 on increased sales volume of 12,556,200 pounds. The barrel price remained steady at $1.6886 on decreased sales volume of 9,407,352 pounds. Dry whey prices slipped lower to 0.2351 on increased sales volume of 8,109,785 pounds. 

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 firm open in whey

Spot Session Results











DOWN ½   














UP 2  







UP 19 ¼  




Class IV, Nonfat, and Butter Futures

Class IV futures rocketed higher on the heaviest futures and options volume the market has seen in quite some time as the price of spot butter continues its parabolic run to the upside and is now revisiting levels north of the $3.00 mark for the first time since late July 2014. Yesterday's aggressive 19 ¼ cent move triggered limit higher prints in nearby butter futures which opened the door to the expanded, 10 cent limits featured in today's session. 

Granted, the cold storage report did show a month over month drawdown which exceeded expectations; however the overall stocks seem to remain more than adequate, which leads to more questions than answers regarding this meteoric rise. Many speculate that much of the produce being held in inventory has been spoken for and is earmarked for pre-priced delivery. It was interesting to note that open interest declined on the price rally suggesting that long time buyers are not scaling out of their positions- this could be signaling and end to the meteoric rise. One thing it shows is that markets will at times go where they want, when they want.

NFDM futures posted another round higher trade as the spot price migrates closer to a duel against the $1.00 mark. Yesterday's performance was strong given the late session pressure which futures succumbed to back on Tuesday. Quite often there would be follow through sell side interest following price action as such, but that did not materialize as futures posted gains through Q4 and the bulk of 2016 on respectable volume.

For the week ending September 19th, the National Dairy Product Sales Report showed the expected increase in the butter price to $2.4713 on steady volume of 3,537,965 pounds. NFDM also registered higher prices at 0.8257 on increased volume of 21,036,435 pounds.

We expect a higher open in the class IV suite of products

NZX Futures

On the heels of Fonterra's announcement of a raised milk price to $5/kg and a decreased milk production forecast with a 5% decline year over year forecasted, NZX futures traded firm with gains in nearby and far deferred WMP contracts as well as buy side interest in deferred AMF and SMP contracts.



Grain markets trudged through yesterday's session but managed to close in the green off of strength in the wheat market, which was fueled by weather concerns. At this juncture the markets are looking for a story to move on, whether it be harvest related or on the demand side of the equation. A bit of support may have also been found in the ongoing Brazilian strike, which is disrupting both loading and off-loading of agricultural products, but at the end of the day that's just not enough to get the market's attention for long. What matters is whether/when China steps in and starts to get on track for seasonal soybean purchases. If that dynamic doesn't materialize in short order, look for prices to leg lower as harvest progresses. The corn market is caught between technical support and resistance points and also thirsting for fundamental drivers.  

Ethanol production for the week ending September 18th, came in lower from week ago levels at 938,000 barrels/day, which contrasted with a surge in weekly stocks to 793.8 million barrels.


We look for corn to open 1-2 lower, beans 2 to 4 higher, wheat 1 to 3 lower and meal up 1.0

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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