Morning Dairy Comments, 09/29/2015

Tuesday, September 29, 2015

Robert Chesler

General Market News
  • NASA detects liquid water on Mars
  • Obama, Putin talks 'surprisingly open' after frosty beginning
  • EPA overhauls rules for pesticide use on farms
  • Chinese stocks decline most in a month in Hong Kong
  • India central bank cuts key rate to 6.75%
  • Idaho dairy farmers named to lead U.S. dairy industry
  • Retailers raise number of store openings planned for the next two years



Class III, Cheese, and Whey

Today's spot cheese session finished with barrels 2 ½ cents lower to $1.5275, with buyers stepping in for 5 loads. No activity was found in the blocks finishing at $1.59. The block/barrel spread sits at 6 ¼ cents. Class III futures were weak in 2015 along with cheese futures. The market is still digesting last week's bearish cold storage report as total natural cheese stocks are 12% higher than August of last year.

The argument can be made that domestic cheese demand may not be filling the void for lower cheese exports. This year featured end users buying cheese in the market to hold in inventory as a form of a hedge. How much of the USDA's cold storage is cheese committed for sale? The more important question should be how much cheese is in private storage outside the USDA's jurisdiction? There's fear that there will be considerable imports of cheese headed across the Pacific from NZ. Although with the spread closing between US cheese prices and the benchmark GDT cheddar prices there may be less of an incentive to import aggressively.


Last year during September our cheese prices were nearly a dollar premium to GDT prices while we right now they have closed to just over a dime. We are approaching the lows we tested in the 1st quarter where we experienced support. How aggressive will retailers and QSR's promote with lower food costs and good demand?  The $1.50's price level is likely where buyers will continue to be ready, willing and able as we come into the demand season for cheese. We don't see that changing anytime real soon. 

Whey futures were mixed yesterday and it appears more light short covering is taking place in 2015 contracts as open interest fell. The whey market is finding some support in sympathy with the stronger nonfat market, but appears that firm pricing into 2016 over the past week has perhaps gotten a little ahead of itself. 

We expect a lower opening in both Class III and Cheese, and a steady opening for Dry Whey.

Spot Session Results


















DN 2 ¼














DN 8 ½




Class IV, Nonfat, and Butter Futures

Spot nonfat was bid once at 94 cents and finished unchanged with no counteroffers. The nonfat futures were mostly lower and sellers are taking an opportunity to sell futures at good premiums to the market. The spot market finished the week off shaky and traders are skeptical about the strength behind the market. It sounds like there is more trading activity out in the spot market as buyers have been sitting on the sidelines waiting for direction.

We have to make the assumption that some buyers are still pretty well stocked up with inventories. The Algeria tender is coming up and it should be interesting how that plays out. European traders will probably be aggressive with offering SMP since their market is trading slightly above intervention levels of €1,698/mt or 87 cents/lb with today's FX. Dutch prices last week were €1,750/mt, German prices at €1,740/mt, and French were 1,700. Oceania will be competitive offering WMP for the tender.

Spot butter shed off 8 ½ cents to $3.05 with 5 trades. Butter futures were limit down on the move. Overnight there has been more selling pressure in Q4 and we will have expanded trading limits today. Traders are worried over the larger than normal drawdown in butter stocks seen in last month's cold storage report, but for not it appears the market has priced in the bulk of that worry – and the drawdowns.  Although we saw some weakness for the first time in a month to spot pricing yesterday, we expect more of consolidation around the $3.00 level as opposed to a collapse of butter prices in the short-term.  We're not out of high priced market yet. 

We expect a lower opening in Class IV, Nonfat and Butter.


Corn and Wheat followed their older wilder brother lower as soybeans finished 12 ½ cents lower on disappointment over lack of confirmation on China's framework announcement.  Trade is concerned the 12.18 mmt of soybean commitments from China won't materialize and knocked additional premium out of the market. 

On the flip side, Bloomberg's China Monetary Conditions Index, a gauge that includes inflation-adjusted interest rates and the exchange rate, improved for a second month in August.  This is the first back- to-back gain since 2013 and has historically preceded some semblance of economic stability – if not growth - for China.
South American weather is improving in both Argentina and Brazil with rain forecast in key growing areas.  We could see an initial trade higher as crop conditions dropped the 1% expected in last week's report.

Corn harvest is expected to ramp up this week as the Western Corn Belt moisture levels are favorable to harvest. Export inspections came in at 809.4 thousand mt but exports are still 13% behind last year's levels.

Wheat started strong on continued dryness forecast for FSU and Australia for the next 10 days.

Tomorrow the USDA will release its U.S. Stocks in all Positions Report. Reuter's survey of analysts pegged U.S. stocks as of September 1st as follows. 


A Realtors Land Institute semiannual survey found Iowa cropland values declined 3.7% from March to September 2015. When coupled with a decline in the previous six months, values dropped a total of 11.3% from Sept 1, 2014 to Sept 1, 2015.

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