Morning Dairy Report, 12/04/2015

Friday, December 4, 2015

General Market News

· Economy adds 211K jobs in November with unemployment rate at 5%

· U.S. Stocks up slightly this morning after suffering the biggest selloff in more than two months yesterday

· Japanese stocks slide the most in two months after ECB disappointment

· OPEC set to maintain output levels

· Top China Cop Targets Bankers after Locking up Security Czar

· Could it be 2017 before dairy markets




Class III, Cheese, and Whey

Class III and cheese futures largely shrugged off a higher spot call yesterday as prices held close to unchanged. It comes as no surprise really when considering we’ve been up and down this trail more than a few times over the past months and from a market standpoint, fatigue tends to set in when this occurs. Additional upside will likely have to be realized in order to get the attention of the trade in earnest. The market tone remains heavy despite the relative support in cash prices as inventories of cheese heavier than normal this time of year.  Meanwhile, both class III and cheese futures prices are in a sideways/consolidative pattern lately. We’re starting to see evidence of this already as indicated by the January-March class III chart below, which is indicative of market congestion. Initial resistance levels are found about a dime to the upside at $14.78 (yellow line), with a secondary target near the psychological $15.00 mark (blue line). The market will take a closer look at the October Dairy Products report which came in bullish versus expectations (see full breakout below).

January to March Daily Class III Chart


Typically futures prices depart from areas of consolidation in the direction from which they came.  In this case, that means prices are poised to go lower.  But it may not be so cut and dry.  The caveat here is that we expect a good two-sided trade to the spot market for the foreseeable future - that means buyers are still ready, willing and able to participate. There is still demand out there. That could bolster futures prices in the coming weeks in what would be a rather unexpected Christmas bounce. 
For the week ending November 21st, U.S. dairy cow slaughter under federal inspection came in 7.6% higher versus year ago levels at 59,500 head.

Our interpretation of yesterday’s Dairy Products report is as follows:

Butter production came in at 147.55 million pounds which was just slightly above our expectation for 146.13 million pounds.

Cheese—bullish vs expectations May American cheese production was 385.7 million pounds well below our expectation for 398.4 million. While other cheese production was above our expectation for 600.7 million pounds coming in at 605.2 million the fact that American cheese stocks far exceeded our expectation on the cold storage report and was below our expectation in terms of production doesn’t bode well for the demand picture currently.

Nonfat dry milk— bullish. It would appear that processors were gearing up to move some powder into the international markets during October as SMP production jumped 50% month over month and as a result NFDM production was way below our expectations coming in at 118.7 million pounds vs. expectations for 143.8 million pounds. Inventories took a sharp hit due to the lack of production coming in at 183.6 million pounds down 13.2% from last month and back below 2014 for just the second month this year.

Dry whey—bullish. Whey production slid for the second consecutive month and the lack of production plus good demand led to a sizeable draw on stocks. Whey inventories came in at 60.9 million pounds an 11.7% decrease month over month but still slightly above a year ago by 4.2%. Given how much pressure prices have been under perhaps this can lead to a slight turnaround for whey pricing in the coming sessions.

WPC—slightly bullish. WPC production was up this month by 10.4% vs. September as it appears there was a slight shift out of whey and into high protein products. Interestingly despite the increase in production inventory of WPC actually fell. We’d term the report slightly supportive due to the strong implied demand.

Lactose—bearish. Lactose inventories climbed once again growing by 6.0% from last month and eclipsing last year’s record stocks. Despite the increase in stocks production was actually lower by 6.2% month over month. All and all a very ugly indication on demand for lactose.

We look for Class III and Cheese to open steady a little higher and Dry Whey to open mixed this morning.
Spot Session Results











DOWN 3 ½  














UP 2







UP ½ 




Class IV, Nonfat, and Butter Futures

The Class IV market was the recipient of spread action against Class III, as nearly all of yesterday’s Class IV volume came as a result of those trades. At this juncture, there’s the expectation that either Class III finds traction and rallies or that Class IV falters when the butter shuttle decides to land. The latter scenario would be the skew here, as Class III likely still has downside to be explored, but the real threat of Class IV imploding faster is probable at current.

That said, yesterday’s butter trade was hinting that this may be about to occur, as contracts through Q1 pulled back on strong volume despite the spot price remaining unchanged. We could be looking at a bit of profit taking here, as there’s been the expectation that butter prices should move lower in short order, however it’s also important to note that when looking at the futures forward curve, there’s likely to be buy side interest between a dime and 15 cents lower from current levels. Back-to-back record pricing years will spark increasingly aggressive hedging activity in 2016 as the paradigm shift regarding natural fat intake will likely be metabolized in the butter market. Drilling down on the February contract, there’s double-topping action appearing as evidenced by the black lines, with initial support coming in at around 1.96 (yellow line) and again near 1.94 (blue line).

NFDM futures continue to plug along at the lower edge of the range, unable to penetrate technical resistance levels and diverging from firming spot action. We would expect this trend to continue and another leg lower not out of the question, particularly concerning deferred futures contracts, which still look a bit frothy at current levels.


We expect NFDM and Class IV to open mixed and Butter to open steady/higher today.

From Our Office in Dublin
Weekly New Zealand cow slaughtering

Data released by the NZ Meat Board this week showed the total number of cows slaughtered in the week to Nov 7th totalled 10,311 head, up from 8,258  a week earlier and up by 6.6% on the same week last year. Cumulative cow slaughtering for the year to date now stands at 52,072 head, 0.6% ahead of last years cumulative for the same period. The data provided by the NZ Meat Board doesn’t distinguish between dairy cows and beef cows slaughtered; therefore not all slaughtered cows quoted in these figures are dairy cows. Despite this, the number of cows slaughtered so far this year is remaining in line with last years figures and 14,287 ahead of the same point in 2013/14.

EEX Futures

30 lots (150 tonnes) traded on EEX yesterday. All lots traded yesterday traded on Q2 butter. Apr16-Jun16 traded 10 lots each and settled up €50 each at €2,850, €2,875 and €2,900 respectively.

NZX Futures
A total of 560 lots/tonnes traded on NZX overnight as the bullish tone continues. 460 lots traded on WMP while a further 100 lots traded on SMP. Q1 WMP traded 400 lots; 230 lots for Jan16 settling up $50, 150 lots for Feb16 settling up $50 and 20 lots on Mar16 settling unchanged at $2,550. A further 30 lots per month traded for Apr16 and May16, settling up $35 and $40, at $2,600 and $2,050 respectively. All 100 lots traded on NZX SMP overnight traded on Feb16 settling up $50 at $2,050.

Fat : Protein price ratios

With the fall in SMP prices relative to butter over the past number of weeks, the fat:protein price ratio has continued to move higher, reaching it’s highest level this year at 74% and getting very close to the five year high of 77%. Relatively strong EU domestic consumption for fat, with stronger sales of butter and other full fat products has helped provide support on the fat side, while SMP has moved back to intervention levels.


Grain markets found a bid and shot higher on the back of a sharply lower USD Thursday.  The trade didn’t much care that weekly export sales fell on the low end of expectations for corn and soybeans and below expectations for soybean meal.  The dollar decline was the driver. And the dollar is recovering a bit this morning already.  There's just not a whole lot to get excited about for grains right now.  However it should be noted that there is more room to the upside in lieu of both corn and beans taking out minor technical resistance levels, which opens the trade up to explore higher prices and challenge longer term moving averages to the north.

The United Nations FAO reported this week that its world food price index for November at 156.7 points, down 1.6% from 159.3 points in October, and the first decline in three months. The index remains less than two points above August’s six-year low.

The organization’s senior economist expects the generally stronger dollar to further pressure global food prices in coming months. The FAO also cut their 2015-16 world cereals output from 2.530 to 2.527 billion tons, with global wheat production this year down from 736.2 to 734.5 million tons.

We look for Corn, Soybeans and Wheat to open mixed.

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.

Market Intelligence Free Trial

Meet the Team

Kansas City, MO
1251 NW Briarcliff Parkway
Suite 800
Kansas City, MO 64116
Tel:+1 (816) 410-5079



Our privacy policy has changed. View our privacy policy to learn more.