Morning Dairy Comments, 10/15/2015

Thursday, October 15, 2015

General Market News

· Oil prices under pressure

· Dollar weak vs. Euro

· Japan factory output slumps, hints at recession

· Iran broadcasts images of underground missile facilities

· McDonald's brand perception at two-year high



Class III, Cheese, and Whey

Class III and cheese futures both shed value yesterday on the heels of an eroding spot market that saw the spread widen out to a nickel at sub $1.70 levels however, all things considered, the trade remains in a state of relative equilibrium with orderly price action in both directions of late. In a sense, the trade has been lulled to sleep. Keep in mind, we are in cheese season and demand remains healthy which will likely work to underpin and support the market on downdrafts.  That aspect alone doesn't appear to be enough to keep the bull fed for long on upside moves, hence the "orderly" nature to the current trade.
The Q1 timeframe encountered the most technical resistance of late and yesterday's action was no exception with prices slumping double digits in the red after failing to hold the 100 day moving average, denoted by the purple line on the chart below. The expectation being that once the holiday demand season is in the rearview, there's the likelihood that prices will slump with the possibility of a return to the mid-August lows not out of the question. Currently, the market has retraced back to levels of support at the 20 day moving average (blue line). If that level wavers, the 50 day moving average (red line) will be the next stop followed by psychological support at $15.50. Should these levels hold, we expect futures prices will track higher. 

Q1 Class III~Daily


It may be time to buy a lottery ticket.  Option activity on class III and cheese call options were identical yesterday (and nearly the same for put options).  219 class III and cheese call options changed hands and 234 class III puts vs. 232 cheese puts.

We expect a mixed opening for Class III, Cheese and Dry Whey.

Spot Session Results


















DOWN 1 ¼







DOWN 1 ½     











Class IV, Nonfat, and Butter Futures

The real headlines were made in the NFDM futures as sellers stepped in with force and drove prices sharply lower with sporadic limit down trade in various months and values slumping into the red through the bulk of 2016 on heavy volume (670 futures contracts, and 469 call options traded!). That marked the second day in a row of price pressure sparked in part by technical indicators lining up with fundamentals and a weaker spot market, which ran headlong into the brick wall at $1.10 back on October 5th.  Q4 contracts managed to recover off their intraday lows as the session wore on, making an effort to hold at the 20 day moving average as evidenced by the blue line on the December chart below.
The market isn't considered oversold quite yet which could lead to additional downdrafts in the coming days with the 101.000 marker needing to hold to stave off the possibility of a washout to the 90 level. If the December contract can remain buoyant enough to stay above 101.000, then this latest move can be chalked up to just a healthy correction in an otherwise bullish trend that was spawned back in early August with additional upside to be expected. For the time being though, the market sure feels heavy and the most likely scenario would be for the spot price to continue to falter, possibly heading back down to the 0.9000 zone, which would keep futures under pressure with the juicy premium in the deferred contracts coming into the crosshairs.

December NFDM~Daily


The butter market seems to have taken back seat for the time being - reduced to just scattered rumblings as both volume traded and price movement have ebbed over the past several sessions. With the spot price holding steady at $2.35, the trade is now left guessing whether a trip back to near $2.00 is in the cards or if buy side interest will materialize and push it back up the ladder towards $2.50. Considering reports of cream becoming more readily available in the country, we favor the downside skew. However if realized, the scope of price erosion would most likely be limited with downdraft potential in the futures forward curve a steady and orderly grind lower. We would expect hedge activity in 2016 contracts to behave much as 2015 did, as few will have short term memory loss regarding what has happened over the past two years with back to back record spot pricing.         

We look for a lower opening for NFDM, a more mixed opening for Butter and Class IV.

NZX Futures

WMP prices continued to erode during today's trade.  WMP lost between $20 and $190/mt to finish between $2,770 and $3,050/mt thru June 2016.  SMP and AMP were mostly steady.  We continue to see this as a correction in price for WMP that is not yet over and that may eventually negatively impact SMP prices for a similar corrective move.


Grain markets remain on shaky footing despite news that China stepped in for more bean purchases yesterday to the tune of another 8.6 million bushels. Tell you what, if a market can't rally on bullish news then look out and at this juncture, downside risk needs to be respected. The trade will get a look at NOPA crush numbers today and is expected to come in at 129.24 million bushels, down from 135.3 million bushels in August but well above 99.97 million bushels last September and the largest September figure since 2007. Trade estimates range from 125.0-132.7 million bushels.
On the corn front, the harvest continues to lag a behind the accelerated soybean harvest pace but remains basically right in line with the five-year average, at 42% done this week. Those average figures call for roughly a 10% addition each week for about the next 4-5 weeks, not reaching the 90% mark until mid-November thanks to a couple slower harvest seasons in a row in 2013 & 2014. IL stands well above normal at 71% done, with IA and MN still below average at 29% each. The early part of next week looks to be signaling the end of the dry Midwest stretch, leading into a wetter 6-10 and 11-15 day forecast.


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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