Morning Dairy Comments, 10/20/2015

Tuesday, October 20, 2015

"Do just once what others say you can't do, and you will never pay attention to their limitations again." – James Cook


General Market News
  • GDT and September Milk Production today
  • Canada election: Trudeau hails Liberal win as Harper steps down as leader
  • Yum Brands to spin off China business
  • Holiday spending per consumer seen up 0.4%
  • FAA looking to require drone registration
  • Microsoft adds 2 women to its board
  • San Francisco Fed President John Williams backs rate hike in near future



Class III, Cheese, and Whey

Futures took their cue from spot again yesterday extending losses in November and December finishing double digits lower.  The weaker spot and whey markets have emboldened the bears, but nearby futures have yet to break below late-September price lows. The notion that spot is falling here in mid-October is, on the surface, fairly negative behavior. But we've been in this kind of range-bound pricing pattern for cheese since June and don't look for that to change today. 

Technically, the Class III 2016 "pack" (below) is trading just above the 20 day moving average (green line) and below the 100 (yellow line).  So – as a whole - futures have drifted lower in 2016 over the past 4 or 5 sessions, but remain technically supported at this time.  We'll watch to see if some fundamental news emerges that breaks support, but as of this time we expect the downside for 2016 contracts to be limited. 

2016 class III futures


Last Tuesday we highlighted the 2016 whey price climb from mid-September and 2016 futures have corrected.  Additional weakness could force class III futures lower even if cheese holds firm. 

2016 Dry Whey futures

We look for Class III and Cheese to open mixed and Dry Whey to open slightly higher.

We look for September milk production estimates to come in just below 1%.  We expect such a number is largely expected ahead of the report. Anything south of 0.5 would be perceived as bullish.  


Spot Session Results

























DOWN ¾    







UP 8




Class IV, Nonfat, and Butter Futures

After trading up to 90 cents, yesterday's spot nonfat market featured 4 trades ultimately settling down ¾ of a cent to 88 ¼ cents.  The nonfat market still seems to be soft, but for now we may find some support as we are in line with EU intervention levels. Just a month ago nonfat was at 88 cents and the market quickly rallied to $1.10 then sold off back to where we started.  Futures were firm yesterday on the back of some heavy selling pressure last week which indicates some short covering took place.  Put spreads were back in vogue yesterday.  The December 96 cent put by 88 cent put spreads were bought for 1 ¾ cents trading 50 times. The February 1 dollar put by 90 cent put spreads were bought for 2 ½ cents and traded 50 times. Those trades would be ideal for a slowly declining market, but definitely not for an all-out implosion. Any questions on the mechanics of the trades please give the desk a call.

Butter continues to rebel against conventional wisdom that butter prices must fall seasonally.  This time last year the October butter contract was falling dimes a day from record high prices.  This is not last year and the issues that caused these high prices have not yet been entirely resolved. From our vantage point, we'll be dealing with buoyant butter prices at least thru the end of October. The chart below shows yesterday's futures curve vs the curve on Monday October 20th 2014.  The market has priced in substantial risk premium to 2016 futures to address America's fat demand renaissance. 


NZX Futures

Whole milk powder futures showed large volumes in last night's session with prices firming up. Watch for the GDT results out this morning where we expect the results to come in slightly lower after 4 consecutive increases in GDT index pricing.

November NZX Whole Milk Powder Futures:


We look for Butter to open steady/higher, NFDM and Class IV mixed. 


Grains finished lower across the board.  Corn continues to struggle as harvest continues in earnest.  Exports continue to lag as inspections are 25% behind this time last year.  Soybean export inspections were much larger than expected at 2.36 mmt but harvest is racing along and yields are being reported better than expected.

Dollar strength continues to make US wheat uncompetitive in the world market.  Weather improvements domestically and in FSU are also pressuring price.

Drier weather has helped move harvest right along this year.  Corn harvest was reported at 59%, up 17% from last week and 29% further along than this time last year (see charts on next page).  While this is a great showing for corn harvest, it was expected.  Soybean harvest is 77% done – 2% below expectations – but 26% above this time last year.  We're still of the opinion that harvest lows are in.

The Buenos Aires Exchange estimated Argentine soy plantings at 19.8 million hectares (48.9 mln ac) in their first estimate of the year, down 1% vs LY

We look for Corn and Wheat to open 1-3 higher and Soybeans to open 4-6 higher.

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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