Morning Dairy Comments, 12/10/2015

Thursday, December 10, 2015

General Market News

· NZ’s Fonterra to end interest-free loans to farmers

· Australian job growth smashes forecasts, unemployment rate falls to 19 month low

·  Inflation in Brazil jumps to 12 year high as Supreme Court enters impeachment fight

· CME Group to revamp cattle delivery rules before meat labeling vote

· Uruguay’s Conaprole Co-Op set to suspend price stabilization payments to dairymen starting at year’s end



Class III, Cheese, and Whey

Class III futures closed out yesterday’s trading session with mixed pricing as the spot Blocks sit just ½ cent off their lowest price point of 2015.  Futures were weaker in the January through August months, settling between 1 and 13 cents lower while the remaining 2016 contracts finished between 3 lower and 7 higher.  The nearby contracts continue to react to spot market volatility as the Class III equivalent based on spot market prices now sits at $13.84.  The path of least resistance for the nearby contracts remains to the downside, though spurts of buy side hedging interests will be seen stepping into the marketplace to capitalize on budget friendly pricing levels.  The deferred Class III contracts have been better supported of late, finding buyers willing to layer in hedge protection at current levels ahead of the presumed price recovery that is to take place in the second half of next year.

Cheese futures tallied nearly 1,000 total trades resulting in price action at settlement similar to the Class III market, with the January through July contracts falling lower, down 0.1 to 1.0 cents, while the August through December 2016 contracts finished unchanged to 0.3 cents higher. 

The dry whey market saw a flurry of activity yesterday that led to 152 contracts trading as the futures settled between 1.100 cents lower and 0.500 higher.  As with the Class III and cheese markets, the price declines were posted in the nearby contracts while the later dated contracts were steady to higher. 

The NDPSR for the week ending December 5th posted with the Block price falling 2.80 cents lower to $1.6258 while weekly sales were estimated to have increased by 47% to 13,262,575 pounds.  The Barrels posted a marginal gain of 0.13 cents to $1.5585 while weekly sales increased by 19% to 9,709,622 pounds.  The dry whey price slid 1.21 cents lower to 23.54 as weekly sales leapt 89.3% higher to 7,289,093 pounds.     

We expect class III and cheese to open lower while whey will open slightly higher 

Spot Session Results











DOWN 2 ½  














UP ¼












Class IV, Nonfat, and Butter Futures

Class IV futures fell victim to the reemergence of price volatility in spot butter session which posted its second consecutive day of steep declines, falling 5 cents lower to $2.79.  The ensuing selling pressure in the nearby Class IV contracts led to declines by settlement ranging from 1 to 33 cents in the December through April contracts, leaving the deferred months unchanged. 

The spot butter session saw sellers emerge yet again, this time with offers that dropped the spot price 5 cents lower to $2.7900.  These offers drove the first quarter futures contracts limit down while the April through November contracts fell between 0.500 and 4.975 cents lower.  The recent trend of the nearby futures contracts reacting to the spot session’s activity, or during the previous few weeks the inactivity, continues as market participants position themselves in anticipation of the weekly pricing points of the nearest futures contracts.  Many of those involved in the butter market have wondered if and when the butter spot price would succumb to the overtly bearish fundamentals surrounding the dairy markets in general, and for the time being it seems that the spot session has heard their concerns.  Yet the domestic butter market still possesses some supportive aspects looking ahead to the coming months.  California milk production should continue to disappoint in comparison to the Midwest while talk of butter producers opting to sell their cream supplies outright for the production of other fat based products rather than butter amid resilient domestic should limit the downward mobility of the butter market in the coming months.  The spot butter market should continue to weaken in the coming days and weeks, though the notion of sub-$2.00 spot butter look to be a things of the past while looking ahead at the prospects of the next few months.

The NDPSR butter price for the week ending December 5th posted at $2.8813, down 0.53 cents form the week prior while weekly sales were estimated to have jumped 55.9% higher to 3,352,510 pounds.  The NFDM price was projected at 77.85 cents, down 0.97 cents week over week while sales were estimated to have increased by 45.1% to 14,813,837 pounds.

The NFDM futures saw the selling pressures of the early morning alleviate some after the spot NFDM price posted a 0.25 cent gain leading to contracts settling between 0.975 cents lower and 0.050 higher as 180 contracts changed hands.  The NFDM market faces stiff bearish fundamentals which should limit any rallies in price in the coming months as the trend for this market remains to the downside.

We expect NFDM and butter to open lower 


Grains markets derived little if any influence from the USDA’s latest supply and demand report as the tables for each of the grain markets remained largely unchanged.  The December corn contract settled 1.75 cents higher to 371.75 while the March contract added just 0.25 cents to close out at 373.75.  Ethanol production saw a modest 25 mln bushel increase for demand thanks to the EPA’s mandate revisions while expected export volume was lowered by 50 mln bushels.  For the soybeans no changes to the supply or demand side materialized while bean oil demand was increased by 200 mln pounds in anticipation of the new EPA mandates which led to the January and March contracts settling unchanged for the day.  In the wheat market funds were estimated to have bought 4,000 contracts to cover a portion of their short position despite the unchanged estimates provided by the USDA.  The December contract settled 7.25 cents higher to 478.00 which the March contract added 8.25 cents to end the day at 489.75.

We look for soybeans and wheat to open lower, corn to open higher




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