Morning Dairy Comments, 12/16/2015

Wednesday, December 16, 2015

General Market News

· Fed watch is on

· Asian stocks rally in advance of Fed

· Crude retreats day after rally



Class III, Cheese, and Whey

And the hits just keep on coming with no sign or sight off traction or a bull to be found in Class III, cheese or dry whey futures as bearishness continues to reign supreme. In a rare session in which cheese futures volume exceeded that of class III and saw cheese futures OI greatly near that of class III, yesterday was a rinse repeat of the action we’ve seen over the past couple months as contracts slid back to the bottom of the range and are threatening another leg lower if spot prices don’t hold in the $1.40’s. Two things that should remain in focus are: 1) the USD and 2) the futures forward curve. Let me explain. First, the greenback has been the currency of choice for the past few months and its strength is having negative impacts on U.S. exports. This has had an impact on the commodity space at large as fund managers bail on the sector, led by pressure on the crude oil market. That said, there’s likely to be a glut of product/milk out there in the coming months and domestic demand will be put to the test and do the heavy lifting. In this case, the heavy lifting may be exactly that—heavy, after 9 months of more than expected support. This leads to point #2—the forward curve. There’s been a lot of chatter out there regarding a “recovery” in the second half and even more rationalization behind its potential. The futures forward curve is pointing to this exactly, with a sharp $2.20 plus cent difference between Q1 and Q4 in Class III. It’s not that the forward curve or anyone else thinking in terms of recovery is wrong because they’re not—so long as the curve stays intact. The problem is that when too many people start believing in the same thing at the same time, one side of the boat gets heavy and the herd eventually—well, you know. In my humble opinion, these two dynamics trump the rest of the fundamentals at hand and until a game changer comes along, this will likely be the driving forces in 2016. 

Q1 2016 Strip~Daily


Q4 2016 Strip~Daily


We expect class III, cheese and whey to open soft

Spot Session Results

























DOWN 2 ¼ 











Class IV, Nonfat, and Butter Futures

Class IV saw decent action yesterday on the heels of diverging component pricing which saw butter hold relatively steady while putting the NFDM market back in the spotlight. NFDM sellers were out early and often so to speak, after the conclusion of the GDT auction, driving the bulk of 2016 sharply into the red as the trade shrugged off the 1.9% overall higher GDT result and let it slip quietly into the history books (see breakout below for detailed results). What can be said other than futures are now back at the low edge of the range where either another leg lower is in the offing, or spot and futures prices find traction and aim for recovery. The former is the most likely scenario to play out here as the bear is has yet to relinquish his grip with the Japanese tender early in the week seeing SMP prices delivered at ~77 cents- that’s a spicy meatball. But we can’t negate the possibility of the outside chance we’re on the cusp of a bounce. It goes contrary to the fundamentals at hand, but taking a look at the chart below there is a weak double bottom that has potential which coincides with the 30-45 day period of NZ weather sensitivity we are currently in- watch out for potential surprise weather announcements in late January around the IDFA conference as we’ve seen in the past which could spur buyer fear or greed to an extreme.

NZX prices saw major declines in powder prices and firmness in AMF and butter in one of the more active sessions this month:


CWAP out at 6.65 higher to .7985 on a 48.8% increase of sales volume week over week. If futures can find a bid today that leads to further upside for the balance of the week, it could unfold into a larger short covering wave. The market would need to muscle through initial technical resistance at the 10 and 20 day moving averages (yellow and blue lines, respectively below) in order to challenge the 50 day near the 1.00 mark (see chart below). On the other hand, if weakness persists as we suspect, look for fresh lows and possibly a significant washout of deferred premium to ensue.

February NFDM~Daily



We expect NFDM to open firm and butter to open steady


Grain markets continue on in search of a story that at present does not exist. The elusiveness of such a story will likely keep prices range bound, as sell side interest will likely not be bold enough to press the issue too much further to the downside just based on the law of diminishing returns. On the contrary, lack of farmer selling in an effort to spark a bid has largely come up short, as rally attempts have been blunted. In a nutshell, that pretty much sums it up. What’s needed is a weather issue and until one materializes, it’ll be a “wax-on—wax-off” market. Below is a summation of the latest NOPA crush tallies which missed even the lowest expectations by a good margin and contributed to some of the pressure seen yesterday in the bean market.      

November NOPA Crush




We look for a mixed opening to the grain complex today

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