Morning Dairy Report, 11/04/2015

Wednesday, November 4, 2015

"Life shrinks or expands in proportion to one's courage". ~ Anais Nin

GDT down a further 7.4% after yesterday's auction

The pace of the declines surprised even some of the more bearish forecasters as demand continues to be absent from the world market. When trying to understand the extend of the declines, as is often the case the devil is in the detail.

WMP declined 8% on average to $2,453. Spot demand seemed to take the worst of the hit as C2 for Fonterra NZ Regular, which the Futures contracts settle against, were down 14.8% to $2335, although C2 was at a slight premium to the rest of the curve in the last auction. For the rest of the curve for Fonterra Regular, C3 dropped 8% to $2405, C4 Dropped 6.8% to $2465, C5 Dropped 8.9% to $2405 and C6 dropped 9% to $2515. The NZX Futures opened up last night, lower again than the GDT, indicating that at least some market participants do not think we have seen the bottom yet. The NZX WMP Futures settlement last night were pointing to another 3-5% decline compared to the equivalent GDT price, with a total of 1170 WMP contracts trading.

SMP showed quite similar patterns to WMP, with the headline number also dropping 8%, bringing the average price down to $2018.  For Fonterra MH NZ C2, the reference the NZX Futures settle against, the prices dropped 9.6% to $1975. The NZX Futures curve for the equivalent periods looks mixed in overnight trade but as trading volumes were light in these months it is difficult to take much of a signal from this. A total of 283 tonnes traded in NZX SMP during the session, the majority of activity was in May and June 16, which continued to maintain a good premium to the near months – trading at $2370 for May and $2450 for June .

AMF saw declines of 5.7% on average in yesterday's auction as the C2 Fonterra Regular 21kg drum NZ/AU, dropped 6.2% to $3605.

The Butter Headline figure also dropped 5.6% to $2574, but this is very misleading as many of the prices were not published in the previous auction and as such the previous headline figure was overstated. While C2 Unsalted NZ Butter did actually decline 4% from the previous auction to $2515, Contract 3-5 actually rose by between 3 and 5.8%. We did call in yesterday's report for a higher butter price so thought it was particularly important that we highlighted this point :-)

EEX SMP trades lower after yesterday's auction

EEX SMP traded down about 3-4% on average after the auction as the improvement in sentiment in the previous few days was quickly reversed.

See full report attached and also our Monthly US Dairy products report


General Market News

· Draghi warns EU over banking reforms

· Europe and U.K. stocks move higher

· Glencore cuts debt target on strong trading

· China Caixin Services PMI picks up in October

· Probe Widens Into Treasury Debt Auctions

· Global dairy prices fell for 2nd consecutive auction, reversing bounce in prices as supply contracted over last few months

· CWAP: California processors during week ending 10/30 sold 8.9 million pounds of NFDM at 84.16 cents ($1855), down 3.98 cents vs. week prior




Class III, Cheese, and Whey

Bearish headwinds continue to prevail almost unabated as the market continues to leak lower on a seemingly daily basis as spot prices hover near the lower edge of the range and futures are left with little choice but to follow the path of least resistance downward. December Class III put in a contract low overnight and has good company, as other months are at or near their contract lows as well. Yesterday's 7.4% downdraft on GDT didn't help matters either, clearly driving home the point that dairy prices continue to struggle for traction and likely will continue to do so until either production gets crimped or an external event changes the landscape. Cull rates are on the rise in New Zealand as margins remain poor, production is also off by an estimated 7.5% and it's unclear what effect El Nino will deliver. That said, it's enough of a fundamental aspect to get the attention of the market but probably not the catalyst to shore up a shaky fundamental picture – at least not yet. In today's terms, both Class III and cheese prices can shout out a bit of thanks to the butter market, because that is what is at least partially responsible for keeping this whole thing somewhat glued together. Seasonal demand is also playing its part but the question remains as to what happens to prices after it wanes? We acknowledge that strong demand has been present virtually all year but we can't ignore the reality that there is quite a bit of cheese out there and that could prove to be reason enough for the barrel to go over the cliff.    

December Class III – Daily


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

Spot Session Results

























DOWN 1 ¼     







UP 5 ½




Class IV, Nonfat, and Butter Futures

It was a tale of two trades yesterday and from the NFDM side of the equation it's continuing here this morning as sellers are getting an early start, pressing the market into the red on solid volume. Speaking of volume, an astonishing 828 NFDM changed hands yesterday as prices slid courtesy of the lower GDT auction, which saw SMP and WMP both trim back 8% (see breakout below). The spot price also came under pressure and was driven back to just above the $0.8000 mark, a level that will likely prove to be critical if another leg lower is to be avoided.

The butter market on the other hand continues to defy gravity and fundamentals as the bull keeps trotting north and looks to challenge $2.85 and possibly $3.00 if any traction can be gained here today. Futures had shown a reluctance to follow the spot price on the initial run to record highs back in September, but have much more sensitive to this latest wave higher as indicated by the chart below, which clearly shows futures running much more in sync with bull this time around. Where's the top? Better question might be "where's the bottom" once the holiday buying spree runs its course.



We expect a lower opening for NFDM, Butter soft, class IV week

NZX Futures

NZX futures were driven back hard on heavy volume as losses were seen pretty much across the board. WMP contracts saw 10% of their value vanish while SMP and AMF trimmed back as well. The December WMP contract is looking to find support near 2200 or another leg lower will likely be in the offing.


Grain markets continue to oscillate to and fro without any real sense of direction as the trade grapples with harvest pressure, technical areas of resistance and sentiment from managed money. The trade does feel as if it's trying to establish some baseline support to stage rallies off of, but as the chart below clearly indicates, that'll be a tough trod with layers of technical resistance to contend with to the north.   Informa managed to top the corn yield estimates list (at least between they, INTL FCStone, and the USDA) for the third straight month, since the USDA outdid them and everyone else with that 168.8 bpa figure in August. However, most were at 175.0 bpa or above last November (with the USDA at 174.2 bpa) before the official yield got reduced to 171.0 bpa. Informa matched last year's Nov bean estimate this month at 47.9 bpa—they wound up 0.4 bpa high in '14.


We look for a mixed opening to the grain complex today

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