Morning Dairy Comments, 01/08/2016

Friday, January 8, 2016

General Market News

· Fonterra breaks its export volumes record in December

· Global stocks and oil prices stabilize after China nudges yuan’s value slightly higher

· World’s biggest crude oil producer, Saudi Aramco, is considering an IPO

· Late December blizzard strikes devastating blow to Texas dairy industry

· USDA announces agreement with South Africa to allow most U.S. exports of poultry,

pork and beef and their by-products to resume



Class III and Cheese

Class III and cheese futures consolidated recent losses yesterday by trading a very narrow range amid mixed signals and light news. Blocks fell a penny while barrels finished up 1.5 cents widening the inversion to 3.5 cents as the price continues to trade around levels we called “in balance” earlier this week. We can be pushed out of the $1.40s swiftly, but for now we look for pricing to continue around current levels.

Although futures price volatility was subdued yesterday in what looks to be a reprieve from price weakness, futures trading volume was moderately heavy  1,584 class III contracts and 1,254 cheese contracts exchanging hands.  Open interest rose by 650 contracts in class III and 765 in cheese illustrating a good two-sided trade around current levels. Yes there is some speculative activity out there, but yesterday was marked by moderate scale-in commercial buying for all of 2016 and farm selling. Producers are shoring up some unsold milk and bracing for another wave of price weakness. The January to December class III price average finished Thursday at $14.80 around recent lows and, after a period of consolidation, looks poised for more weakness.

January to December Class III Price Average


We’ve seen circumstances change on a dime before. Just think back to January of 2011. We finished the week ending January 7, 2011 at $1.3650. By March 4 the price of block cheese was $2.02. For today, however, milk flows and production are still outpacing problems caused by tightened profit margins and weather issues throughout the Southwest.  The overall picture of weaker pricing continues. 

Dry whey futures finished mixed Thursday – again, hanging in around 25 cents for the yearly price average (25.72 to be specific).  155 contracts traded yesterday, so we’re seeing good volume return to the dry whey market this week. The supply overhang continues to work against our relative value pricing proposition on the world stage leading to a mixed trade we expect will continue today.
The Central Mostly Dry Whey powder price was up 0.62 cents from the previous week at 22.00 cents, while the Western Mostly price was steady at 24.00 cents.

For the week ending December 26, dairy cow slaughter under federal inspection was up 0.5%, at 42,600 head, compared with the same period the previous year. Year-to-date slaughter levels are 3.6% higher than 2014 levels, with 2,907,500 head slaughtered.

We expect Class III, Cheese and Dry Whey to open mixed.

Spot Session Results




































Class IV, Nonfat, and Butter Futures

Butter futures settled into another day of rather moderate volatility as prices finished mixed, 1.00 cent lower to 1.00 cent higher. Four loads of butter traded during yesterday’s spot session to lower the price of butter by ½ cent to $2.0325, but the key takeaway is stability. The spot butter market looks to have found some semblance of balance for the time-being in the low $2.00 range. 

Expectations of increased imports of fat to begin the year is raising thoughts of weaker spot pricing by the end of the month or sometime in February. But we’ve been down this road before; expecting increased imports of fat to impact U.S. butter prices is the dairy industry’s versions of Waiting for Godot. Will this be any different? We’ll call it a stable market with the prospect of dipping below $2.00 – even briefly - fairly good going forward.

NFDM futures continued to erode Thursday on moderately heavy volumes thru December 2016.  Nearly 300 contracts changed hands as the forward curve premiums continue to erode under quiet news and plenty of product.  Look for more of that to finish the week. The Dairy Market News Western Mostly NFDM price was down 0.63 cents from the previous week at 74.25 cents per pound.

We expect Class IV, Butter and NFDM to open mixed.


NZX futures prices were mostly stable and quiet to end the week.  WMP showed mixed trading with March up $10 and July, August down $100 and $150, respectively. 

Rainfall is expected to continue over the weekend in the central and eastern North Island. The rainfall has had a strong positive impact on grass growth. There are still soil moisture concerns in the eastern North Island and southern parts of the South Island, but overall recent rains have benefited famers in New Zealand. 

Soundsplash music festival is being held in rainy Raglan, NZ this weekend. The map below is courtesy of Courtesy of The Waikato Civil Defense Emergency Management Group. Sometimes simple and fun is a good way to end the week.

A New Zealand weather map we can get behind (North Island)


The grain markets shrugged off poor weekly export sales figures and the Chinese stock market meltdown yesterday with the corn and soybeans holding steady while the wheat market pushed higher.  Corn export sales commitments are now 19% behind the pace needed to meet the current annual USDA estimate, soybeans commitments are lagging by 4% while wheat is behind by 9%.  With weather conditions improving in the FSU and the rebalancing of index funds which could lead to more selling of grain contracts, mainly corn, the lone bullish factor that may come into play in the near term would be the actions of Chinese bean crushers.  With the prospect of further weakening yuan crushers in China may opt to ramp up soybean purchases now in dollar terms, either from SA of the U.S., ahead of continuing declines in the yuan’s value.

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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