Morning Dairy Comments, 11/06/2015

Friday, November 6, 2015

General Market News

· U.S. stocks set for weekly gain

· Shanghai Composite Index up 6.1% this week

· Chinese-owned dairy producer Yashili opened a new factory in Waikato, New Zealand

· German factory orders down 1.7% in September

· U.S. home ownership is currently at 48 year lows at 63.4% of the population owning a home

· Shake Shack restaurant sales jump in third quarter



Class III, Cheese, and Whey

Class III volume was firm yesterday though the direction of the market in the short term continues to be muddled. The spot market had block trading firm after barrels rallied Wednesday as the market looked to put the block-barrel spread back into the normal historical range.  Blocks are at the highest level since October 15th and in-spite of all that futures settled well of the intra-day highs selling off late in the day. Nov was up 20 cents December up 16 and early 2016 contracts were steady to 9 higher. The spot equivalents are back in line with futures but with such strong gains on spot of late and given how the market has traded for much of 2015 you'd expect the futures to carry more of a premium.  The flattening of the spot/nearby futures curve is interesting, but not necessarily indicative of a trend shift yet.  We have our eye on this, however, as a spot market that begins to carry premium to futures would be more of a signal of price strength during a time when buyer worry is low and expectations are widely focused on not 'if' but 'when' spot cheese prices will fall.  

Strong volumes were seen in the dry whey complex as well with over 130 trades occurring and prices mostly lower. Only Nov and Dec posted small gains, +0.250 and +0.200 respectively while 2016 contracts were steady to -1.700 cents on the day and the vast majority of the volume was in the deferred contracts. Technically the market looks bearish and this seems to be a continuation of that recent downtrend for the 2016 contracts. Interestingly the export numbers for whey products was actually relatively supportive, total whey exports were down 1% year over year but lactose and MPC posted solid gains of 15% and 28% respectively. This may offer some support for those products from a price perspective which would eventually pull production away from dry whey and eventually lead to a bullish case for this market. Sizeable inventories of those products need to be worked through however so for now upside feels limited.

Other highlights from the September exports were total exports on a volume basis up 9% year over year reversing the trend of lower exports for the previous 4 months. NFDM/SMP volumes were up 47% vs. a year ago and while whey products were mostly improved both cheese, -20%, and butterfat, -72%, exports were down sharply which is likely to be expected given current futures price levels.

Weekly slaughter was 56,100 head unchanged from a year ago and leaving us up 3.8% YTD.

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

Spot Session Results











UP 5 ¼







UP ¼ 







UP ¼     










Class IV, Nonfat, and Butter Futures

Activity in the class IV market and the products slowed down after the fireworks following Tuesday's GDT auction. Class IV saw just 8 total trades and price movement occurred only from November 16 through June 2017. Nov and Dec were both up 26 cents while 2017 contracts from Jan through June were 10 to 35 cents lower. The spot butter market opened and closed quietly for the second time in the past two weeks and it slowed the upside momentum on futures for a day at least. Volume exceeded 100 contracts for the day and nearby months from Nov through Feb were down 0.750 to 2.500. April through June were a bit more resilient trading 0.025 to 0.500 higher. We'll continue to count the days to December pricing getting started on the week of the 23rd. We'd expect prices to start falling in advance of that date and certainly any loads purchased on the exchange this week are unlikely to make it to the retail shelf for Thanksgiving and that may be the reason for the quiet session today and you can almost hear the clock ticking...

NFDM rallied slightly on low volume. To put it in to perspective, volume on Thursday's rally was 9 contracts Nov-Feb, whereas volume on Tuesday's loses came on 464 contracts during the same time period. This shows little convictions in the gains made yesterday. The recent bearish GDT and Production report seems to have been digested by the market and interestingly it was the deferred contracts that were trading firmer than the nearby months. March through December settled steady to +2.00 cents yesterday. Perhaps this was a bit of spill over from the firm NFDM/SMP exports noted above.

We expect a lower opening for NFDM, Butter steady

NZX Futures

Overnight saw mixed activity for WMP and SMP on the New Zealand Exchange.  WMP was $5 lower to $40 higher by the close while SMP finished $150 lower to $10 higher. Strength was seen in the nearby contracts and we'd expect more buy side interest at current levels ($2,300-$2,500 for WMP and $2,000-$2,200 SMP).  We're not saying the market ought to shoot higher, but that we expect some consolidation around current levels to be the development early next week.  AMF and Butter futures were quiet and steady.


Grains traded lower throughout Thursday's session as export sales came up short of expectations and are sharply trailing YTD sales totals as you can see in the charts below. Soybeans led the price declines as export sales were 24.1 million bushels vs. expectations for 51.4 to 66.1 million bushels. January soybeans were down 20 cents to $8.64. Both corn and soybeans are approaching the lower end of the recent trading range which should offer support especially given that the November USDA report is coming up on Tuesday. From a fundamental perspective we appear to have plenty of supply and reason enough for USDA to start slicing into demand given the slow exports, however risk is seemingly greater to the upside currently given that we are near the lower end of the recent range.


We look for a soft opening to the grain complex today


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