Morning Dairy Comments, 12/31/2015

Thursday, December 31, 2015

General Market News

· Dairy Markets Close at 1:55pm Central Time today

· Jobless claims jump 20,000 to 287,000

· NZ dollar heads for 12% decline in 2015 on dairy

· Ukraine to ban imports of some Russian goods (including dairy)

· McDonald’s of the future opens in Hong Kong

· How a Domino’s Pizza order helped lead to the capture of ‘affluenza’ teen Ethan Couch



Class III, Cheese, and Whey

Both class III and cheese futures tacked onto recent gains yesterday as short covering and quarter/year end position squaring continued. With spot prices retracing back through familiar territory the next target could be the $1.50 mark, but we don’t expect much strength beyond that given the current supplies of cheese available. But we expect to close the year on a stronger note for cheese. The real issue will be what the U.S. cheese market looks like by mid-January.

There are lots of questions and unknowns and there is also reality. What we know today is that there is plenty of cheese in storage domestically. With the exception of the brutal storm down in New Mexico and Texas that will likely have negative reverberating milk production effects for months to come, we know that milk production is by and large plentiful east of the Rockies. And we expect that the greenback is likely to continue to be well supported against other major currencies in light of inflationary Fed policy moving forward.  That will likely continue to be a headwind to export business in 2016.

On the bright side, according to MasterCard, retail sales (thru MasterCard) rose 7.9% year-over-year during the

2015 holiday season.  Amazon had strong holiday sales and even made the claim that, “This holiday season, customers purchased more than enough 50-inch TVs to span the average with of the Grand Canyon.”  I’m not sure how many flat-screens that amounts to, but let’s call it a strong sales number. Bottom line: there are sprouts of an economy gaining steam here to end the year. People are spending money.  The question then becomes: will that continue into the New Year?  And, if so, how far will spending span into the food categories including dairy? 

Looking forward, we see the story of strong US and EU milk production continuing early in 2016.  But don’t be surprised if the real story for the first half comes out of New Zealand.  Between 12-18 months of low prices and confronted by El Nino weather uncertainty, New Zealand seasonal milk production is decidedly vulnerable to losses of greater than the 6% or so expected. That vulnerability coupled with continued strain on California milk production can serve to tighten the milk supply picture rather quickly.

We see the recent strength in class III and cheese as a market correction rather than a new long-term trend higher. But that correction doesn’t look complete yet either. The 2016 class III strip is brushing up against the 20 day moving average at $15.40, indicated by the blue line, with the 50 day moving average lying in wait to the upside at $15.83 (red line). We’d expect a push through initial resistance to be met with fresh sell side interest as it’ll likely be a tough sell for the market to find much traction north of that level.

2016 January-December Pack Average – Daily Chart


November’s milk-feed price ratio in the Agricultural Prices report, as reported by USDA-NASS, of 2.42 was up 0.13 points from last month’s 2.29. The ratio is 0.33 points below last year’s 2.75. The ratio remained above the 5-year average for the twenty-sixth month running, as the average ratio for November is 2.18. The USDA-NASS Agricultural Prices report shows milk and input prices used in the ratio were mostly lower versus last month. USDA-NASS left October’s ratio at 2.29 with none of the four commodities used to calculate the ratio changing.


Spot Session Results











UP 2







UP 1







UP ¾  







UP 4 ¾




Class IV, Nonfat, and Butter Futures

What a year indeed with NFDM plumbing the depths amidst a butter market that soared to record price levels for a second consecutive year, setting the stage for continued support as the futures forward curve holds at a premium to cash, well above the $2.00 mark. We would expect some pressure to be brought to bear in the near future however the market is likely to be well supported on such breaks as hedgers have and will continue to be proactive in 2016.
As far as NFDM is concerned, prices have retreated to levels where export interest has materialized and though the broader buy side of the market continues to embrace the hand-to-mouth purchasing pattern in expectation that lower prices are still to come, one must be wary of the moment when sentiment shifts. When and where that time/price level might be is anyone’s guess, but a healthy amount of premium has been sapped from the forward curve, bringing prices sub $1.00 through May 2016.

For the week ending December 26th the National Dairy Products Sales Report showed the butter price coming in sharply lower as expected, at 2.07, on increased sales volume of 3,451,378 million pounds. The NFDM price also registered lower at 0.78 on substantially lower sales volume of 12,265,158 million pounds.



Grains were a mixed bag as both corn and wheat slipped into the red while beans were able to continue on to higher ground, posting 3-4 cent gains on light spreading with corn. Beans continue to garner strength from Midwest flooding issues that has halted barge traffic on the Mississippi River near St. Louis, which has swelled to levels not seen since the Great Flood of 1993.
Corn on the other hand is hovering just above contract lows as the trade digests news that Argentine President Macri officially scrapped export quotas on corn and wheat yesterday, after eliminating corn and wheat export taxes and reducing the country's steep export tariff on soybeans earlier this month. Throw in chatter that China is threatening to block imports of grain sorghum and DDG's and the trade gets jittery. However, if they were to make good on such threats it would imply that domestic reserves are sufficient and would not be a threat to food security -- not a likely scenario to play out the Chinese are wary of such a development and have gone to great lengths to shore up their food chain capabilities.
From a technical perspective there’s not much in the way of support for corn however beans are looking to muscle up through multiple layers of resistance at critical moving averages, indicated by the cluster of lines just to its upside. A weak buy signal was also triggered yesterday which may provide support heading into year end, however a test of recent lows would ensue if the market is blunted at those resistance levels.

March Soybeans~Daily


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