Morning Dairy Comments, 12/08/2015

Tuesday, December 8, 2015

Ability has nothing to do with opportunity." ~Napoleon Bonaparte



General Market News

· Dunkin' Donuts to switch to cage-free eggs by 2025

· Asian stocks drops as China exports, Reserves decline

· OPEC unshackled from quota could add millions of barrels- crude below $38

· China November auto sales surge 18% as tax cut bolsters demand

· China issues first pollution red alert

· Consumer Borrowing in U.S. Increased at Slower Pace in October



Class III, Cheese, and Whey

Class III futures grinded sideways as the market brushed off lower offers on spot cheese. Blocks traded down 2 ¼ cents to $1.49 ½ on 3 trades. Barrels were offered as low as $1.45 ¼ and were bid back up to $1.47 on 3 trades. Class III has been supported by the whey futures as last week the NDPSR was up 1.52 cent to $0.2468 cents/lb ($544/mt) on relatively light volume of 3.7 mil lbs. DMN prices were higher on the low end of the price range, but steady on the top end of the range. The chart below illustrates how the NDPSR typically lags the AOM prices, although in this case the NDPSR may be jumping ahead of itself which make the futures prices look rich.  

Last Friday, Cheese exports for October came in at 23,616mt down 10% from last year, and cheese exports are down 15% ytd. Exports to Mexico were up 29% from last October, although exports to S. Korea were down 54% and Japan down 46%. S. Korea and Japan are maintaining their buying patterns, just merely shopping around to Europe and Oceania, cutting into the US’s market share. Cheese has to find a home as Russia is out of the picture still, displacing about 20-25,000mt of cheese onto the global markets. 

Total whey exports were down 21% in October for a total of 34,000mt. Total whey exports have lagged by 10% over 2014’s ytd pace. Cheese processors continue to shift production around to find the most economical returns for their whey streams. Dry whey production was up 10% in October as stocks are up 4% over 2014. WPC34 production in October was down 34% as stocks are 9% over 2014. The higher protein WPC’s production was up 16% as stocks remain burdensome up 47% from 2014. Finally Whey protein isolates production was up 14% in October whiles stocks are 44% over 2014.  



We look for Class III and Cheese to open soft

Spot Session Results











DOWN 2 ¼   







DOWN 1 ½ 














DOWN ¼  




Class IV, Nonfat, and Butter Futures

Class IV firmed up as spot butter held its ground finishing a ¼ lower to $2.90 on 1 trade at the close of the session. Butter futures rallied as the market continues to converge towards spot prices. According to last week’s USDA Dairy products report butter production in October was down 1.7% from last October to 147.5 mil lbs. California production was down over 4 mil lbs or down 9% from last October to just shy of 42 mil lbs. The chart below shows California’s share of production in October was 29% down from 31% in 2014 and down from 35% in 2013. Less milk in California combined with cream searching for the highest economic returns are causing the decline in butter production. Nothing shocking from the export report, as butterfat exports are relatively nonexistent compared to last year or especially 2013.

The spot nonfat market dropped another ¾ cents to 78 cents on 1 trade. Friday’s SMP exports showed an increase of 29% over last October to 50,000mt over last year’s 39,000 mt number, and just shy of 2013’s record of 51,000mt. Mexico stepped up again and imported a record 28,537mt for October. It’s pretty hard to argue that this is merely an aggressive inventory building program from Mexico. The problem is will they be here a few months from now to keep buying while they are comfortably stocked up? Exports to Southeast Asia have come under pressure as the competition is cutthroat. OPEC’s decision on Friday to keep pumping was bearish to the economic outlook of the Middle East and North African countries and Venezuela who are major dairy importers.


NZX Overnight:


We expect NFDM and Class IV to open lower and Butter to open higher 


Soybeans sold off sharply yesterday on news the Argentina President will move to normalize the country’s exchange rates as early as the 14th of December. The black market rate is around 15:1 USD while the official rate is only 10:1. Prices paid to the Argentina producer will go up about 52%. The market is worried over the 30 million MT of soybeans held by producers as a currency hedge in the black market. The funds sold 12,000 soybean contracts.

The weakness in soybeans and crude oil spread into the corn market. Ethanol blending margins are now at a negative 25 cent/gallon which inhibits non-mandate domestic ethanol demand. The December USDA S&D report will be released on Wednesday 11am central as the trade expects fairly steady domestic and global carryout numbers.

January 2016 Soybeans


We look for corn to open firm, beans oft and wheat 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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