Morning Dairy Comments, 11/20/2015

Friday, November 20, 2015

General Market News

· Gunmen take 170 hostages at hotel in Mali

· Equities set to open higher today on a few stronger than expected earnings results, most major indexes set for best weekly performance in over a month

· Drahi says ECB will do what it must to create inflation

· Australian Dairy company set to be sold to foreign investor:



Class III, Cheese, and Whey

Class III posted over 1,000 total trades, yet open interest declined by just 7 contracts as traders played the intraday volatility of the nearby contracts, as the Block/Barrel spread widened once again ahead of the milk production report for the month of October.  Class III futures settled mixed for the day, with price changes ranging from an 11 cent decline to a gain of 4 cents as market participants are now faced with deciphering the results of the production report. 

The results posted by the USDA fell right in line with our expectations across the board leading to our interpretation of a neutral report.  But a more meaningful observation might be that such a report may quell the rather negative sentiment around recent cheese and class III prices.  As we mentioned in our recap the lack of growth in the milk-per-cow rates is a continued sign of feed/forage issues producers are facing in various regions of the nation. These issues are longer-lasting and are impactful when you consider that milk-per-cow figures typically increase this time of the year. 
With cow numbers expected to remain relatively stable overall in the near term any escalation of the issues hindering milk-per-cow production rates should further exacerbate the spreading of year over year production declines in the West and East.  And while the Midwest has more than carried its own weight, offsetting much of the declines seen out West over the past few months, we are nearing the point where the white wall of milk being produced in America’s heartland won’t be enough to offset the shortcomings of some of the other major production sheds.  We’ve written about this in the past and it continues to be a growing issue.  If this pattern continues at pace, than hefty supplies of cheese notwithstanding – forecasting drastically lower milk prices into Q1 from current levels may be the wrong call. 

The dairy cow slaughter under federal inspection for the week ending November 7th was estimated at 60,300 head, up 1,100 head from the week prior while up 7.9% year over year. Year to date the slaughter is pegged at 2.5222 million head, 4.0% higher that during the same period last year.

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


Spot Session Results


























DOWN 1 ¼











Class IV, Nonfat, and Butter Futures

The Class IV futures shot higher in the nearby months in response to the strength in the butter market as the December through March contracts gained between 7 and 32 cents.  The butter market provided the most excitement on the day as the yet another unchanged spot butter price, though an uncovered bid at $2.88 did materialize, inspired another round steep price increases in the nearby contracts as the futures continue to pull more in line with the spot value.  The December futures contract flirted with an expanded limit up move before settling for the day up 9.550 cents higher.  The January contract rose in sympathy, tacking on 4.00 cents, while the remaining butter contracts settled between 0.025 and 2.225 cents higher. 

Butter values have stood stoutly in the face of slumping global values, deriving support from the reduced availability of product, strong domestic demand for fat-based products and the sheltering from a potential tidal wave of global product hitting our shores looking to capitalize on significant price discrepancies.  Buy side hedging interest remains ever-present as market participants look for opportunities to establish protection for the coming year to avoid a repeat of 2014 or more recently what has occurred over the past several weeks.  Those with  product on hand seem to be in the driver’s seat for the moment, willing to withhold sales in anticipation of further escalations in price of the forward curve.     

NFDM futures shook off the price decline tallied during the spot session to settle between unchanged and 0.900 cents higher excluding the November contract which posted a loss of 1.400 cents.  Yesterday’s price action should be seen more as an exhausted bear market trying to catch its breath rather than a shift away from the burdensome fundamentals of the complex.  

We expect NFDM and butter to open higher this morning 



Grain markets benefited from better than expected weekly exports sales, with demand for all three crops besting the highest of pre-report predictions and stemming the bearish onslaught that has weighed on the marketplace.  The corn futures posted gains of 2.00 to 2.50 cents as the export demand coupled with the strong pullback in the value of the U.S. Dollar aided values.  The pace of exports for corn thus far this year are still running 30% behind last year’s pace.  Soybean futures posted minimal gains ono the back of the stronger than anticipated export sales with China taking 1.6 mmt of the 1.8 mmt reported.  China’s crush margins are moving further into the red, yet crushers there seem willing to build supplies at these historically low price levels.  The wheat market had the strongest showing within the grain complex as the weekly export sales reported nearly doubled the highest of expectations.  Weak exports out of the EU have values there falling below those of the Former Soviet Union countries, while both still remain below U.S. prices.  Without some sort of demand shock to the grain complex as a whole values will continue to grind along within recent trading ranges before heating up during the battle for acreage in early 2016.   

We look for grains to open mixed with corn and soybeans lower while wheat tries to build on yesterday’s move, opening slightly higher 


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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