Morning Dairy Comments, 01/12/2016

Tuesday, January 12, 2016

General Market News

· McDonald’s hit with EU antitrust complaint

· Clinton proposes 4% income tax surcharge on US wealthy

· J.P. Morgan Chase says sell stocks on any rally

· Arch Coal files for Chapter 11 Bankruptcy

· Senate Democrats pressure White House for more Iran sanctions



Class III and Cheese

Spot cheese yesterday saw barrels edge ½ a cent lower to $1.5350 on 8 trades as blocks settled at $1.46 with no activity. Class III and Cheese futures showed more weakness after Friday’s attempt at a rally.  The cheese market is still feeling heavy as the US is losing market share for exports, especially to Asia. Domestic demand last year kept the cheese market balanced, but 2016 is showing that cheese is not immune to the global pressures of an oversupplied marketplace.

Whey futures were under pressure as premium continues to shed off of the forward curve. Important to note according to the CFTC’s Commitment of Traders (COT) report most of the selling pressure on whey has been from the non-commercial “crushers”. The crushers simultaneously buy Class III futures, sell cheese, and sell whey to profit on the spread. The COT report showed commercial buyers have been adding to long positions during the last few weeks on declining prices.

Overall the whey futures curve is much flatter than the NFDM futures curve for example, which may present some buying opportunities. Whey exports have been challenging over the last year, down a total 10.9% though November. We should begin to see some export volumes move going forward as the US has been at a discount to EU prices. Whey powder inventories are in line with last year and so are WPC’s. Buyers are finding WPC34 availability a little tighter as manufactures have been diverting whey streams into the higher protein products to manage inventories building. Higher protein whey powder inventories are up over 40% from last November.

We expect Class III, cheese and whey to open lower.

Spot Session Results





































Class IV, Nonfat, and Butter Futures

The Class IV market was firm yesterday with mixed trading in nonfat futures. The nonfat spot session settled unchanged at 73 ¼ cents with 2 bids. The market overall is sluggish as buyers are well covered and are not making aggressive moves in this environment.  November’s powder exports were up 0.8% from 2014 to 42,602mt as about half was credited to Mexico. Another Algeria tender popped up last week. Oceania offers for WMP are aggressive as product has to move somewhere with the absence of Chinese buying. The EU will be covering most of the SMP business.

The spot butter market was stable settling at $2.035 on one bid and no offers. Butter futures were firm although the offers on the board were light. Commercial buyers continue to seek some upside coverage. There was a bid for the April-June $2 puts/$2.16 calls collars for 25 contracts/month with no trades. Many observers are skeptical of the sustained strength in butter. The question is just how much is demand increasing for not just butter but fat in general?

A good gauge is to look at October’s fluid milk sales report: conventional whole milk is up 4% ytd, while conventional skim milk is down 10.3%. To further validate this trend the same report shows the organic numbers. Organic whole milk was up 9% ytd, while skim milk was down 14.5%.  Organic milk is only about 5% of the entire fluid milk market.  I would argue that people who consume organic products think of themselves as healthier eaters than the average person. If the trend is more prevalent for the organic market then that would validate the thought there is a dietary shift in the country towards saturated fats. 

We expect the Class IV complex to open mixed with butter steady to higher and NFDM lower.



Corn, soybeans and wheat all finished lower yesterday as we prepare for the Annual USDA supply/demand report today at 11 central.  Corn finished 5 cents lower as the funds added an estimated 7000 contracts to their short position.  Exports inspections are running 11% behind last year and 6% behind the USDA.  Expectations are for the USDA to cut export numbers again. 

Soybeans initially traded higher but failed within the first hour and finished 4 cents lower as inspections came in on the low end of expectations and are running 12% behind last year and 5% below USDA projections.  Trade expects the USDA is over-estimating exports by 75-90 mln bushels.  South America continues to see beneficial rains in both Brazil and Argentina.

Wheat finished 9 cents lower as funds added 6000 contracts to their short position.  Inspections are running 11% behind last year and 5% below USDA. 

The US currency is not doing commodities in general any favors as the dollar strength has the dollar at 10+ year lows with major trading partners. 


We look for a steady to lower opening in the grain complex today. 



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