Morning Dairy Comments, 10/22/2015

Thursday, October 22, 2015


General Market News
  • McDonald's US sales just rose for the first time in 2 years (up 0.9%)
  • Draghi hints at more stimulus to come
  • Southwest earnings up 83% on lower fuel prices
  • Paul Ryan gets support from House Freedom Caucus for House Speaker position
  • China's big chance to steady nerves on economy
  • Idaho health officials link eight foodborne illnesses to raw milk



Class III, Cheese, and Whey

Class III and cheese futures traded slightly higher on the heels of Tuesday's milk production report that showed production up 0.4% from last year.  It wasn't so much that the absolute number itself was 'bullish' per se, but that 0.4% didn't prompt fresh selling. 
Early futures strength was sustained by what we'd call a stable spot call Wednesday.  Blocks trimmed 1.25 cents to settle at $1.6125 on 1 traded, but barrels – now back over $1.60 - traded 12 loads to finish up 2.25 cents.  From our vantage point yesterday's spot activity is less about market direction and more a signal of stability for the moment.  We'd expect there is more cheese to come to the exchange today, but the buyers seem willing and able at current price levels.

In the end, yesterday's bounce came after a week's worth of futures pricing decline and did so on light volume.  Just 531 class III contracts exchanged hands in what, so far, appears to be a corrective bounce.  Open interest rose by 107 contracts, however, which is interesting to note since the bounce doesn't show signs of being the result of some hairpin speculative short-covering.  
Cheese futures volume eclipsed that of class III, which is a rather rare occurrence.  600 cheese contracts traded and open interest rose by 112 contracts.  The main difference was that the trade was much more broad-based for cheese with largely even trading volumes per month through December 2016.  Although not unusual to see distance to volume on the cheese contract these days, it highlights the growth of the contract in long-term hedging decisions after sessions in which class III volume is rather quite. 

Option activity for both was more in line with historical patterns.  731 class III options traded yesterday compared to 174 cheese options.  Most of the option activity was rather spread out in Nov-March but there was moderately heavy trading in the November $15.50 call strike.  The $15.50 calls, which traded at 28 cents, accounted for about 35% of the class III call option volume yesterday.

The September Cold Storage numbers are released this afternoon (see estimates below).  We look for another big number out of the cheese department.  We expect Total Cheese to be up 11.6% yoy and down 3.1% from last month.  We have American cheese coming in up 9.4% yoy and down 2.6% from last month.  These numbers may seem burdensome, but we suspect that the trade is by and large looking for big numbers out of the USDA in this report. 
Dry Whey futures finished mostly higher yesterday although modestly so.  We look for more mixed trading around current levels as the shine of the recent price rally has faded over the past few sessions in what we appears to be a price correction as opposed to a resumption of downtrend.  There's not much news out there for the whey market 'bulls' to glom onto right now – but we expect the market will be supported above September's low prints for now. 


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

Spot Session Results











DOWN 1 ¼







UP 2 ¼ 







DOWN 1 ½ 











Class IV, Nonfat, and Butter Futures

NFDM led the way lower yesterday on good volume.  319 contracts changed hands as prices traded mostly lower.  Another round of aggressive spot offers was met with willing buyers in the mid-80 cent range.  Although we think more powder will come to the exchange today, we do expect buyers to dig their heels in here.  Technically, the December NFDM contract slipped back down below the 100 day moving average (purple line) yesterday in a nod to bearish fundamental sentiment.  Generally this type of technical activity ought to be perceived as negative for price action.  However, we'll reserve technical judgement on this to see how the market behaves over the next day or two as we expect there to be some level of support around current levels. 


Spot butter continued to show modest weakness yesterday as that price finished down 2 cents at $2.4200.  With steep discounts on the forward curve, the futures market was more stable.  It looks like more price weakness for spot butter in the coming sessions as the recent bounce seems to be over for now.

We expect September butter stocks to be 17.6% above 2014 inventories at 179.2 million pounds. September's expected stocks level would be in between the five-year and 10-year averages. Month-to-month butter stocks should show a 14.4% decrease. Last year, August-to-September holdings were 11.8% lower. August-to-September butter stocks have decreased in 10 of the past 10 years.

Class IV was unchanged to 29 cents lower yesterday on light trading. We look for a more mixed trade on Class IV at current levels. 

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


Corn soybean and wheat markets were quietly higher yesterday as technical strength coincides with farmers stashing the crop.  Export sales were weaker for corn but much stronger for soybeans in this morning's estimates.  If you haven't bought some of your feed needs into next year, we encourage you to look at doing so.  We believe the harvest lows are in at this time. 

Keep in mind that Chinese industry analysts believe the government could buy 50% less corn for state stockpiles in 2015/16, as local officials offer subsidies for processors to use more domestic grain.  China's 2015/16 corn harvest is expected to be a record at 228 mmt, up 6% from last year.


We look for Corn, Soybeans and Wheat to open slightly 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.

Market Intelligence Free Trial

Meet the Team

Kansas City, MO
1251 NW Briarcliff Parkway
Suite 800
Kansas City, MO 64116
Tel:+1 (816) 410-5079



Our privacy policy has changed. View our privacy policy to learn more.