Morning Dairy Comments, 10/26/2015

Monday, October 26, 2015

General Market News

· House panel approves increased weight limits for milk hauling

· WHO study says red meats likely cause cancer

· US Treasuries flat ahead of Federal Reserve two-day meeting

· US stock futures lower as hopes of monetary easing fade



Class III, Cheese, and Whey

Class III futures finished the week trading lower, erasing much of the mid-week gains on the nearby contracts as the price of barrel cheese fell to $1.55 – the lowest level so far this month.   The only aspect that stood out is the lack of volume Friday - and the lack of volume in general.  Trading volume is one metric to determine how strong a price move is, was or could be.  On Friday, just 511 class III contracts traded hands.  Such a low number doesn't show much conviction for the move. 

Stepping back to take a bigger look, lower daily volumes have become rather common recently.  In fact, for the first 15 days of October, total class III volume totaled 9,589 contracts some 41% below the same period last year when trading volumes registered at 16,459 contracts.  Cheese futures volume is also lower, down 23% from 4,732 to 3,627 contracts during the same October time period in 2014. This is an admittedly small slice of yearly trading, but it does show that the activity for the month of October is down.  Is this observation a problem for the markets and will it continue?  Simply, no and no.


Markets are always in a state of flux.  Volumes grow and decline along with overall participation or Open Interest.  It's natural.  But what does it tell us?  The slower trading volumes are a signal that the market is directionally stunted.  We've talked about the physical market "being in balance" for a while and lower trading volumes are, in part, a representation of that.   Once the market moves from the current range – and it will for some reason at some point as we all know – we suspect volumes will begin to increase.  What does it mean for direction?  Well, supply/demand seem to be point lower.  But remember that lower trading volumes tend to occur at market bottoms – not tops. 

We look for class III and cheese to open lower, whey steady

Spot Session Results


















DOWN 4 ¼ 







DOWN 1 ½    












Class IV, Nonfat, and Butter Futures

The NFDM market was the main focal point of trading activity within the Class IV complex as the 1.50 cent decline during the spot NFDM session led to wide spread declines.  NFDM futures settled between unchanged and 2.975 cents lower during an active trading session that saw just over 130 futures contracts and nearly 250 options change hands.  Demand for milk powder, both domestically and on the global stage, remains inadequate to offset current supplies.  China remains largely absent from the marketplace, reportedly importing 70.4 million pounds of WMP and SMP in September marking a 5.4% decline from August while well below the historic volumes of the past two years.  

Butter futures ended the week mixed, but mostly lower, with contracts settling between 1.975 cents lower and 1.425 higher.  The steady pricing of the spot session was not enough to offset the bearish sentiments derived from Thursday's Cold Storage Report and the weakness of the NFDM futures. 

The Class IV futures moved lower as a result of the component markets weakness, with the greater losses seen in the November and December contracts, down 12 and 15 cents respectively, while the April contract was the lone 2016 month to post a price change, falling 5 cents lower.    

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

NZX Futures

NZX futures pushed mostly lower last week with Butter and SMP bearing the brunt of the selling pressure.  Butter ended Friday's session unchanged while tallying a 13.79% decline week over week to $3,000/mt.  AMF remained unchanged week over week at $3,900/mt.  SMP fell 4.09% to close at $2,110/mt. while shedding a total of 13.88% from the week prior while WMP slipped 0.38% lower Friday to $2,620/mt. with a weekly decline of 5.42%. 


The grain markets closed the week's trade with mixed results by settlement as the soybean sector moved lower while the corn and wheat were steady to higher.  Soybean futures pushed lower on the improvements in South American weather as weather models are calling for normal to above normal rainfall over the next two weeks in almost all of the soybean producing areas of Brazil and Argentina.  The November contract settled 3.25 cents lower to 895.50 while the January contract settled 5.00 cents lower to 896.00.  Harvest pressure has eased for the corn market has producers pulled back on selling at current levels allowing the December contract to settle 1.50 cents higher to 379.75 with the March contract adding 0.75 cents to 388.75.  Argentina corn plantings are occurring at their slowest rate since 2005 as producers there await the results of the upcoming election and the potential shift in government policy towards corn exports.  The early session selling pressure within the wheat complex was negated with late day buying action into the close resulting in minimal price volatility by settlement, with the December contract closing down 0.25 cents to 490.50 as the March contract gained 0.25 cents to 497.25.

We look for a mixed opening in the grains with corn and wheat higher and soybeans lower.

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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