Morning Dairy Comments, 10/19/2015

Monday, October 19, 2015

General Market News

· US equities close higher for third straight week

· Oil prices closed higher on Friday but were down nearly 5% on the week

· Australian dairy farmers struggling with high water costs:

· US investors largest buyers of NZ dairy farms:

· Canadian Farmers' Union says TPP the beginning of the end for supply management:



Class III, Cheese, and Whey

The class III market finished last week mixed on strong volume. The spot market was lower but that didn't seem to have much of an impact on futures as they traded lower early in the session and held those levels despite the losses. Contracts were +1 to -8 across the complex and mostly lower from the prior week. The Oct to Dec pack average was down 20 cents to $15.65 to close out the week. Interestingly prices were even softer for the 2016 contracts as the Jan to March pack finished 37 cents lower at $15.71. Currently the market seems to be very much in balance and that has the spot market currently sitting smack in the middle of the yearly trading range in the mid $1.60's. We can't foresee any strong movements in the market in the short term as we think the market will trade mostly sideways until we get past seasonal holiday buying.

The whey market was extremely active last week and finished out Friday's session mostly lower after early week gains. Friday's settlements ranged from -1.625 to +0.225. On the week the Oct to Dec pack was down 2.4417 cents to 26.175 cents. The sell-off appeared a bit technical in nature as futures were in overbought territory and we'd look for support around the previous lows ~24.40 for the Oct to Dec pack. Interestingly the weekly EU quotation report showed a slightly higher whey price in USD terms and the weekly DMN prices were also firmer so there doesn't appear to be much of a reason for the sell-off fundamentally. 

In addition to the GDT event tomorrow, the September Milk Production report to come tomorrow afternoon as well as the September Cold Storage report later in the week so it will be a busy week on the news front. Milk production estimates included below.

We expect a mixed opening in both class III and cheese and a steady open in whey


Spot Session Results











DOWN 1 ½














DOWN 4    







UP 7





Class IV, Nonfat, and Butter Futures

The powder markets were extremely active last week and Friday was no exception. The spot market fell by 4 cents Friday and 10.50 cents on the week to lead the declines. Once again futures opened the day lower and traded lower for the majority of the day only to recover a bit late and Friday's session finished mixed. Oct through December were -0.425 to -2.500 while the Jan through May contracts finished 0.475 to 3.475 cents firmer. Volume was firm with near 170 trades taking place. Market chatter during the week was mostly bearish in nature as market participants gathered at the Anuga trade show in Germany and the USDEC meeting in Chicago. We heard reports of significant volumes being offered into the market perhaps more than buyers were prepared for because on the week the nearby NFDM contracts were down sharply. The Oct to Dec pack lost 6.767 cents to settle at 96.650 on Friday.

This week all eyes will be on the GDT auction coming tomorrow morning. After seeing significant gains the past few auctions market expectations are more mixed for tomorrow's auction. Part of the NFDM futures market recovering late in the trading sessions last week was undoubtedly due to some concern that GDT prices may not fall early this week. We'd expect to see some significant short covering of recent sales if the auction posts a significant gain tomorrow.

Butter futures volume to close the week was extremely light with just 7 total trades taking place. The market is likely in a fearful state as we get past the point of being able to buy spot to satisfy holiday needs and historically once we are past mid-October prices seasonally decline. That didn't deter spot buyers last week however as Friday's session saw prices gain 7 cents and close the week higher by 3.25 cents at $2.45. Futures were 0.625 to 1.00 higher on Friday and on the week the Oct to Dec pack was up 1.284 cents. Below we include the butter price seasonal chart showing the recent decline and potential for more to come which likely kept futures from rallying more sharply after the big spot gains.


With NFDM falling class IV was under pressure as well despite the slight rebound for butter, Oct finished down 4 while Nov was down 8 on the day. Other contracts were unchanged.

We expect a mixed opening for NFDM, Butter and Class IV.

NZX Futures

It will be a big week for NZX futures with the GDT auction coming tomorrow. Last week futures were mostly lower with WMP down $45/tonne to $2,850 other nearby contracts were steady on the week for SMP, butter and AMF. Futures continue to hold a premium vs. the last auction's results for most products, though WMP is an exception with prices in line with the last GDT. Expectations for tomorrow's auction seem to be highly varied as some expect prices to continue to be sharply higher in an effort to close the gap vs. futures and as a result of recent reports putting NZ milk production for September down ~9% while others are expecting to see prices fall as we have seen futures in the US trade lower since the last GDT auction.  We'd expect a bit of a lighter day for NFDM futures ahead of the report.  Overnight the NZX futures closed the session mostly steady in the last session prior to the GDT auction.


The grain markets finished out the week on a mixed note with wheat leading to the downside as it fell double digits settling the week at $4.9225. On the weekly charts there is a gap from $4.75 to $4.80 that looks likely to fill early this week. The market is still in an upward channel but corrected sharply last week falling by 17 cents. Weather is the main concern for wheat as it is for soybeans as planting progress is off to a bit of a slow start in SA due to dryness. The weather maps for this week show improved chances for rain which would really help. On the week soybeans were up 12.50 cents despite closing down 7 cents on Friday at $8.9825.

Early week action will be closely watched on soybeans, as you can see below the November daily chart is looking to retest a number of the short term MA. If we fall through those levels a re-test of the lows would likely be next however if they hold the next objective on the upside would be the $9.26 100 day MA. Corn finished the week up 1.25 cents at $3.7675 down 6 cents from the prior week. This market remains range bound going back to late July from $3.60 to $4.00, weather for wheat and soybeans will likely tell the short term story for corn.

Daily November Soybeans-


We look for corn and soybeans to open 2-4 cents lower and wheat to open 5-7 cents lower.

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