Morning Dairy Comments, 10/29/2015

Thursday, October 29, 2015

General Market News

· Third-Quarter GDP growth just 1.5%

· U.S. Dollar lower this morning

· U.S. Jobless claims stuck near 1970s-era lows

· China says it will end one-child policy

· China's New Zealand farm-buying run into opposition

· CME Group Profit Soars on Volume, Data Growth


U.S. 3rd Quarter GDP
The U.S. economy created growth in gross domestic product (GDP) at an annual rate of 1.5% in the third quarter, down from Wall Street's expectations of 1.7% and down from 3.9% in the second quarter. That robust pace in the second quarter was largely due to inventory investment, which was not sustainable without a stronger economy. Inventory investment was more sluggish in the third quarter. On a positive note, consumer spending rose a healthier 3.2%, which is critical for a consumption-based economy. Business investment in equipment rose by 5.3% during the third quarter. Inflation growth was smaller than expected as measured by the PCE index, rising at a modest annual rate of 1.2%, down from expectations of 1.4%. PCE rose 1.3% after extracting food and energy.

The Fed kept the door open for a rate hike in December in yesterday's statement, but it is yet to be seen whether it will have the courage to finally get off zero. The dollar rallied sharply late in Wednesday's trading session on the possibility, but I remain skeptical. The broader commodity sector remains capped by global economic concerns, which thus far has made it difficult to sustain rallies, even at times when the dollar is weak for similar reasons.

Class III, Cheese, and Whey

The Class III market ended mostly mixed with modest weakness thru March giving way to modest strength in the second half of 2016.  The spot call left something to be desired by both market 'Bulls' and 'Bears' as lower block cheese pricing was met with a firming in barrels to close the spread to a more palatable 4.5 cents. Block cheese now sits ½ cent higher than September's low – a level from which the price of blocks was catapulted to $1.80 at the beginning of this month. Will the same happen again? We don't think so. The market feels rather heavy, but if you want an answer to why the nearby futures of November and December are carrying a large premium to spot prices (call it $0.75) it may be because the trade is on-guard for some type of holiday bounce as we roll into next month. 
Looking into next year, the January to December class III and cheese prices are choppy around the $16.40 and $1.7350 levels, respectively. Producer sell side interest has diminished somewhat over the past several weeks, but those are levels that provide respectable levels of profit margin to consider given the current news of the day.

Figures released yesterday by Eurostat for Dutch milk collections for Sept showed that even though milk production has begun to taper off, collections for Sept totaled 1.09mmt, up 9.3% on Sept 2014 and up 9.6% on the three year average. Cumulative Dutch collections for 2015 to date now total 9.88mmt, 4.6% ahead of the cumulative total by Sept last year.

On the weather front, New Zealand is looking at average to below average temperatures in the near term, and normal to below normal moisture is expected to occur across the country. Weather will continue to garner much attention in Oceania as El Nino is expected to peak later this year and into early 2016.

NDPSR for the week ending October 24th saw block prices average $1.70 per pound, an increase of 1.9 cents.   Barrels averaged $1.68 per pound, an increase of 3.4 cents from the previous week.   Dry whey averaged 22.7 cents,

We look for a mixed opening to Class III and Cheese and a lower opening for Dry Whey.

Spot Session Results











DOWN 2 ½ 







UP 3 ¼ 







DOWN 2 ½







UP 11




Class IV, Nonfat, and Butter Futures

Spot butter gained another 11 cents on the day, settling at $2.6400.  Butter has gained nearly 29 cents since hitting its lows earlier this month. To put this move into some perspective, last year spot butter was trading at $1.8500 at this time.  Year–to-date 452 loads of butter have changed hands vs. 770 last year.  So we're seeing an uptick in butter available at the exchange over the past two months, but it hasn't really mattered much as demand remains intact at higher levels. While it's difficult to know when that will change – when we get that 20 or 30 cent downdraft - it doesn't look like it will happen this week.  Although yesterday's spot session may foreshadow a lower number of would-be buyers over the $2.60 level, we expect the butter price to hang in there to close out the month. 

While butter moved higher on lighter volume, NFDM futures plummeted lower on heavy volume.  459 contracts changed hands as nearby and early 2016 prices plummeted. November finished limit (4 cents) down.   Q1 NFDM is now trading at 1.02375, a level not seen since mid-August.  Spot market feels heavier now than it did a week ago and, with little change in the news, looks poised to edge lower still. We say 'edge' because we expect that buyers will still be in the mix between here at the mid-70 cent range.  We may even see this market supported at the 80 cent level for now. 
Fonterra offered quantities for Tuesday's GDT auction were released overnight with no changes from the previous forecasts. This will be the first auction with announced C1 volume for AMF, Butter, Cheddar, Casein and SMP.  Fonterra hit peak milk last Thursday, three days later than last year. A total of 86.9m litres of milk was processed, down 3% from last year's peak of 89.6m litres.

NDPSR for the week ending October 24th reflect a decrease in NFDM of 4.3 cents, from the previous week, to average 90.6 cents.   Butter averaged $2.44, an increase of 0.5 cents.

We expect Butter to open slightly higher, Class IV and NFDM to open mixed.


It was a rather mixed and uneventful Wednesday for the grain complex.  Corn prices continued to erode slightly yesterday while soybeans finished a modestly higher, regaining some of the previous day's losses.  Soybeans are supported by seasonal export demand.  Export demand overall was strong this week, which may underpin prices at current levels. 


Speaking of export demand, Thomson Reuters compiled shipping data from Brazil and reported the potential for Brazilian grain exports to triple from a year ago, with 114 ships scheduled to leave Brazilian ports next month.  A year ago, 42 ships were on tap to carry 2.27 MMT of grain. BRZ ports normally ship more corn than soy into the end of the calendar year, though 4.64 MMT of corn were shipped in September already, compared to 3.06 MMT of soybeans. November corn exports could reach 5.3 MMT next month, up nearly 150% from Nov 2014, and compared to 1.3 MMT of soybeans.

Total DOE fuel ethanol production declined to 944,000 barrels per day on the week ending 10/23, down 7k from the previous week and the lowest Oct output number so far, though still 7k above the comparable week last year. Cumulative production through nearly eight weeks of the 2015/16 corn marketing year stands at 949k bpd, still 43k bpd ahead of last year's pace.

Look for a slightly higher opening on the grain complex.

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