Morning Dairy Comments, 10/16/2015

Friday, October 16, 2015

"I busted a mirror and got sever years bad luck, but my lawyer thinks he can get me five." – Steven Wright



General Market News
  • GDT proposes to amend its Market Rules and the Advisory Board Charter to Establish an Oversight Board
  • Americans outdo Chinese in NZ dairy land buying
  • Fed's Mester renews call for U.S. rate hike
  • Ireland no longer putting dairy products into EU market support systems
  • Turkey shoots down aircraft from Syria
  • Federal government now holds nearly 50% of all residential mortgages



Class III, Cheese, and Whey

Prices retreated for the third day Thursday as both class III and cheese futures pushed modestly lower amid a lackluster spot call and weaker powder and whey markets.  There has been little impetus to push prices higher all week, but we're not in collapse mode either.  Prices have drifted lower in an orderly fashion and, so far this week, nearby futures have maintained a trading range inside of last week's price movement.  In other words, prices have been in directional purgatory lately.
We can talk the bearish – and to be sure some bullish – aspects of the market, but class III and cheese prices are sideways.  And sideways price action is more uncertain price action.  And because of that we can look at the way the market feels somewhat heavy today and say, if we close out the week inside of last week's trading range – prices may be done going down for a while. 

Milk production has been a little tougher to come by in the upper Midwest over the past several weeks as good bottling demand competes with cheese processing for holiday orders.  This is a seasonal situation but over the past week or two we've received more comments about "needing an extra load or two" of fresh milk than we have all year.   We suspect that will flush out over the next several weeks. 
Down in New Zealand, comments are more negative for milk production over the next 6 months.  Expectations continue to range from a 3 to 5% decline year-over-year going forward.  The recently released GAIN (Global Agricultural Information Network) report had this to say:
"The second successive year of low dairy prices is taking its toll on New Zealand dairy farmers both financially and on herd numbers. Forecast milk supply is set to drop by two percent to 21.4 million metric tons in 2015. This is likely to be followed by a further fall in 2016 of three percent to 20.8 million metric tons. Both dairy production and exports will follow the same direction."

Worry about NZ milk production is tempered, however, by current product inventory levels.  The argument is, we don't need to really worry too much right now about NZ milk production because we have a lot of product that still needs to move through the pipeline.  Fair enough.  But keep in mind that sales of product can increase faster than milk production. 
For the week ending October 3, dairy cow slaughter under federal inspection was up 10.02%, at 59,300 head, compared with the same period the previous year. Year-to-date slaughter levels are 3.9% higher than 2014 levels, with 2,231,100 head slaughtered.

Dry Whey prices tumbled yesterday as the market seems to have paid more attention to the fundamental picture here this week.  Prices were driven up primarily by good perceived valued; they're driven down by supply/demand fundamentals. NDPSR Dry Whey fell $0.0188 cents to $0.2244.  The Central Mostly Dry Whey powder price was up $0.02 cents from the previous week at $0.2200 cents, while the Western Mostly price was up $0.0025 cents at $0.2100 cents.

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

Spot Session Results

























DOWN 5   







UP 3




Class IV, Nonfat, and Butter Futures

An estimated 330 NFDM futures contracts exchanged hands dropping prices for the third day in a row this week on Thursday.  The market feels heavy and with spot tumbling back to the low 90 cent range, expectations are for more price weakness.  However, prices are encroaching on areas of technical support that may hold in the near-term.
It wasn't the futures that were the bright spot of activity yesterday.  NFDM option volume hit 1,168 contracts in total yesterday. Not a record, but a very strong showing for powder options.  Most of the option activity was in the form of what are affectionately referred to as an "option tree".  In an "option tree",  a trader or company will buy one type of option at one strike price and sell two of the same type of option (call options for example) at other strike prices.  For example, the February $1.10/$1.20/$1.30 Call Option "tree" traded at 2.75 cents 35 times.  In this case, someone bought 35 $1.10 calls and sold 35 $1.20 calls and 35 $1.30 calls above to help pay for them.  Someone else did the opposite.  If you have questions, please call or write us.

The Dairy Market News Western Mostly NFDM price was unchanged from the previous week at $0.9600 cents per pound. Last week's CA Weighted Average price was $0.8708 cents, down $0.0237 cents from the previous week.  NDPSR came in a little stronger than some were looking for, up $0.0164 to $0.8917.

For all the negative talk around butter lately, the spot market has held its own lately.  Spot butter traded up to $2.42 yesterday before settling back down to finish 3.00 cents higher at $2.38. Futures reluctantly followed trading slightly higher on light volume.  Futures are really consolidating around current levels but are concerned about following spot prices higher amid a sense that this will not last long.  We shall see, but for today we look for a steady to slightly higher opening for nearby butter.

We look for a mostly lower opening to NFDM and a steady/mixed trade for Butter and Class IV.


Grain markets have continued in choppy and slightly lower fashion as grains are rather balanced and sideways for the time being.  NOPA soybean crush came in below expectations at 126.7 million bushels but that was still 27 million bushels ahead of last year.  Export sales are out Monday afternoon because of the Columbus Day holiday this past Monday.  Midwest rains pick up next Tuesday and Wednesday, but it will be a dry weekend.  We look for a slightly lower opening for grains this morning.

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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