Morning Dairy Comments, 12/23/2015

Wednesday, December 23, 2015

General Market News

· US consumer spending climbs 0.3%

· Shell cuts $2 billion from capital-spending plan

· Asian markets move higher as oil recovers

· Noble exits agricultural markets with unit sale to China’s COFCO

· Codex takes another step toward processed cheese standard

· Young CA Dairy Leaders Selected to Ride on Inaugural Real California Milk Rose Parade Float



Class III, Cheese, and Whey

The commodity rout keeps coming and dairy has been no exception.  Class III continued its downward trend yesterday but this time the second half took the brunt of price declines.  The July to December Class III price average breached the $16.00 market yesterday settling more than 30 cents lower from Monday at an average of $15.81. The first half pack is now trading at $14.02.  Since November 1st, the Class III pack has lost $1.88.

Stagnant spot prices in the low $1.40’s has led to the whittling away of futures premium for both class III and cheese over the past several weeks.  So far this week the trade is less about “whittling” away premium and more about “panic”. And the sharp declines this week have occurred on heavy trading volumes.  In fact, yesterday, both class III and cheese posted over 1,900 contracts changing hands and Open Interest catapulted by 796 contracts in class III and 959 in cheese as a good mix of both producer and speculative selling pummeled the markets.
Dry whey futures also got into the mix and traded sharply lower. A new daily volume record of 408 contracts changed hands on the Globex platform. Back on January 29, 2010, 534 trades were reported but over 400 occurred ex-pit on that day making yesterday a record for the electronic trading platform.  The sell-off pushed the January to December dry whey pack to a new low just south of 25 cents – the average finished at 24.8750 yesterday. 
The reality of the global supply situation is coming to fruition domestically. The supply side continues to dictate direction even as the domestic demand remains somewhat robust. The market is adjusting to the realities right now and it’s difficult to know when that will stop or what prices are “too low” for the current situation.  The market is driven by emotion in times like these and it typically makes for increased volatility.  If you missed an opportunity yesterday, just wait – it may not be long before you get it again.  If you need proof of this, just look at the cattle market over the past few weeks. 

American cheese stocks increased in November, which has happened three of the past four years now. American cheese stocks of 697.9 million pounds were 9.8% higher than a year ago and 0.2% above the previous month while October stocks were increased 1.2 million pounds. Total cheese stocks in November of 1,145.6 million pounds were 12.6% higher versus a year ago, but down 0.05% from last month. Stocks were 27.3 million pounds more than expected, while the previous month’s stocks were revised 2.3 million pounds lower, bringing the total cheese supply at the end of November to the equivalent of 35 days use.


We expect class III, cheese and whey to open steady to lower.

Spot Session Results
































UP 1 ¾ 




Class IV, Nonfat, and Butter Futures

NFDM values plummeted yesterday with the bulk of decline occurring in the deferred months.  Fundamentally little can be argued on the bullish side of things when it comes to NFDM. Any buying that is occurring seems to be “hand to mouth” as buyers step aside to see how low things can go.  Production, from what we are hearing, is steady and inventories are more than adequate.   With that said, rains in CA and NZ are not helping the situation in NFDM either as weather has been favorable as of late.

Butter futures rallied on a move higher in spot.  While recent declines have subsided, futures continue to remain relatively supported as we move past Christmas and into the New Year.  With that said, we should expect cream supplies to be more available.

Butter stocks were lower, which typically happens all of the time in November but were 28.7 million pounds above the five-year average. Butter stocks at the end of November were nearly 6 million pounds below expectations at 132.70 million pounds as continually strong demands has underpinned prices. Butter inventories fell nearly 26% from October yet remained 23.37% above last year’s levels

NFDM is called to open steady lower  while butter is called to open steady higher and Class IV mixed.

NZX Futures

There was no trade on the NZX Futures yesterday as much of the market has been thinning out for Christmas.


Scattered rains and general commodity market weakness yesterday put our bumper crop in the limelight driving price lower. It seems that when the news is stale, the market wants to go lower.  Corn prices are still holding in around recent lows however, so the net result of the past several trading sessions has really been choppy and sideways.  We may make new lows, but if not we expect more continued choppy sideways action here for corn.  And the longer that lasts, the more it looks like a bottom.  We shall see. 

March Corn Daily Chart


Mato Grosso rains were deemed “scattered” over the past 24 hours, with the heaviest activity still south; rains will continue over the next two days, though, before mostly drying up over the next ten days. Northern rain chances are better in the 11-15 day today. Flooding problems will remain localized in southern states despite a very active precipitation stretch continuing into January.

We look for a mixed opening in the grain complex today.  Corn and Wheat are called slightly higher, Soybeans slightly lower.

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