Morning Dairy Comments, 11/02/2015

Monday, November 2, 2015

General Market News

· China factory gauge signals contraction in 3rd consecutive month after an unexpected October reading

· Chipotle E. Coli outbreak closes over 40 stores in WA and OR as search for contamination continues

· Cutting fast food not the best way to lose weight:

· Euro area manufacturing picks up on improving German order intake

· Draghi cools further QE talk in Europe

· Royals win World Series

· All Blacks win the Rugby World Cup (back to back years)



Class III, Cheese, and Whey

The class III market finished the week mixed with nearby months under continued pressure and deferred contracts slightly higher. Settlements ranged from -2 to -8 from Oct to Dec but steady to 8 higher from Jan through September. The spot market finally bounced on Friday but it was a case of too little too late for the nearby contracts. Spot equivalents put the class III price just north of the$15.00 mark and futures continue to trade in the mid $15.30's for Nov through Jan. A slow grind to the downside aptly describes last week's activity. By Friday afternoon the Oct to Dec class III pack average had lost 12 cents to $15.37. While nearby contracts were under pressure as a result of the weaker spot markets the deferred contracts continue to find buy side support as the first half pack finished the week 3 cents higher at $15.94.

The market seems to still be in balance at present and futures carrying a slight premium to the spot market seems to be a result of some concern over the potential for another round of holiday buying to push prices a bit higher. However we hear plenty of cheese is available currently and while a short term pop seems possible we believe it would be just that, short term. The upper Midwest still has plenty of milk and stocks are increasing, we hear chatter that plenty of aged cheese is out there if desired so it does feel as though much like the butter market it's not a question of if, but when.

Below we include the Jan to June pack average chart which has turned lower, we do have support just below the market currently with the 50 day MA and the 50% retracement but this appears poised to test the recent lows around $15.70.

January to June class III pack average – Daily


Whey prices finished the week on a mixed note with prices settling from -0.275 to +0.225 on firm volume. Volumes have been heavier of late as the market attempted to round out a bottom and has since began to pull back once again. The Oct to Dec pack finished the week at 25.0917 cents, down 0.1416 cents despite an early week move higher. The strong USD is doing little to offer support to the whey market and the EU weekly prices were lower once again. While there is some optimism that the higher value whey product prices could bounce back it hasn't been seen to this point and heavy cheese production has led to heavy whey production. We get the dairy products report this week and we'd expect more bearish news for the whey market. Our expectations included below. 

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


Spot Session Results











UP 3 ¼







UP 2 ½ 







DOWN ½    







UP 7





Class IV, Nonfat, and Butter Futures

The class IV market was pulled in two different directions this week. Ever stretched a rubber band as far as it could go? It snaps, and wow does it hurt! Below we include a copy of the butter vs. NFDM spot market spread seasonal chart. The line that looks like it doesn't belong? That's the top line the black one, 2015. We're very near the historical highs, made earlier this year, for the spread and this past week saw things widen out significantly by 34 cents in just 5 sessions to $1.9650. Watch out for that rubber band breaking!

Spot butter – spot NFDM seasonal chart 2006 - 2015


On Friday the class IV market finished the week mostly higher as both the NFDM and butter futures markets were higher despite a mixed bag on the spot sessions. Settlements Friday ranged from steady to +38, on the week the October to December pack average closed at $15.71 up 16 cents from the prior week.

Below we include a seasonal chart of the spot butter market showing the recent sessions counter seasonal strength. It is an extremely difficult time to get a good read on the butter markets currently as DMN reports continue to state that cream is readily available however those that we speak to in the marketplace indicate an extreme tightness as anyone looking for extra loads is unable to find them. It appears as though we are still struggling to find enough product to get us through the holiday period and the strength may be able to hold up for another week or two. As you can see on the chart below however we've not seen the spot butter price above $1.67 in any of the past ten years. This year may be a fresh record high however we don't believe the market can stay above the $1.80 mark.

Spot butter seasonal chart 2006 - 2015


Friday's session saw futures settle 0.300 to 9.00 cents higher on the day on solid volume. For the week the Oct to Dec pack average settled at 2.42008 up a massive 14.45 cents from the week prior. The selloff seems inevitable the big question is when will it come and having gotten to this point on the calendar it now seems as though it may not happen until we get nearer December futures pricing which doesn't come until the week of Thanksgiving.

The NFDM market closed out the week on a weaker note for spot but posted a recovery on futures. The strength in futures likely came about as the spot market though closing lower was well off of its intra-session lows. We traded down to 79 cents before rebounding back to finish the session at 80.50, down ½ a cent. Futures then settled from 0.125 to 2.000 cents higher on Friday with firm volume. Technically the market is very oversold so a short term bounce wouldn't be a big surprise, however as you can see in the chart below we could see a sizeable bounce and still not turn the charts from their currently bearish structure. Overnight NFDM traded near 100 contracts from Dec15-Aug16 as much as 3 cents lower in Feb. 

October to December NFDM pack average – Daily


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

NZX Futures

NZX futures finished last week on a quiet but mixed note as we move towards Tuesday's GDT event. Futures are now trading at a discount to the last auction result and would price in a 5 to 7% decline expectation for Tuesday. On the week futures were lower across the board, WMP futures were down $50 per tonne to $2,550, SMP futures were down $40 per tonne to $2,070, AMF futures were down $80 per tonne to $3,820 and butter futures were unchanged at $3,000.



Grains finished the week on a firmer note as wheat led the gains. December wheat was up 7 cents to $5.22, corn finished up 2.25 cents at $3.8225 and soybeans were up 5 cents to $8.8375. The grains have been stuck in a sideways trend for over 2 months and last week was a continuation of that pattern. Wheat seems to be the market with an opportunity to breakout of its recent range as it will likely look to test the 200 day MA early this week. Corn is right in the middle of its recent range while soybeans linger near the lower end of the recent range. We get private production estimates early this week which may start to provide the market with something to trigger a more sizeable movement but at the moment we have our doubts that a significant move is in the offering. This choppiness may well continue through the holiday season and into early 2016 when we would finally see some data on usage with the end of quarter stocks.

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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