Morning Dairy Comments & EU Intervention Report, 01/14/2016

Thursday, January 14, 2016

General Market News

· Tech stocks lead 365 point Dow decline, -2.21%

· China shares below levels of last summer’s crash, Shanghai Composite Index down 2.6% overnight, 44% below the June peak

· $1.6 billion Powerball jackpot sounds like it will be split between 3 different winning tickets

· The EU equities couldn’t escape the downturn as they fell 2.5% overnight a well

· BOE kept rates at a record low 0.5% overnight amid global economic uncertainty



Class III, Cheese & Dry Whey 

Class III and cheese are attempting to look tough. While not quite Carolina Panther tough, as spot prices have found support at $1.40 and basically ripped back a dime higher, futures have taken notice and are currently rounding out an area which could prove to be baseline support so long as cash holds. Nearby contracts have retraced to areas of technical resistance, which have proven formidable when previously tested, while deferred contracts have been a bit more methodical on the rally and have a bit more room to the upside before encountering areas of interest (see charts below for illustrative purposes). Fundamentally, the bearish picture has yet to change and the list is long from higher production in the U.S. and EU, the Russian dairy ban, weak Chinese imports and even weaker economic conditions, a strong USD, ample cheese stocks, etc. These aspects have been well documented and when mixed together and shaken up have yielded quite a bearish concoction, just recently driving futures to contract lows. The pop to the upside we’re seeing is likely the result of short covering as the law of diminishing returns certainly looms with prices where they’re at, leaving the path of least resistance to the upside in the short term. Long term, the market should continue to be looked at through the bearish lens because without a game changer, the recent upside momentum will likely be construed as a selling opportunity. The charts below indicate the technical resistance levels at the 10 day moving average (yellow line) and the 20 day moving average (blue line). If the trade can muscle through those levels then the 50 day would start to come into focus (red line).

For the week ending January 9th, the National Dairy Products Sales Report showed blocks a bit lower at $1.46 on increased sales volume of 13,511,049 million pounds. Barrels came in higher at $1.51 on increased sales volume of 11,141,233 million pounds, while dry whey was steady at 0.2339 on increased sales volume of 6,422,788 million pounds.

Class III February~Daily


Class III July-December~Daily


We expect Class III and cheese to open firm, whey steady

Spot Session Results











UP ½  







DOWN ¼  







UP ¾  







UP 6 ½




Class IV, Butter & NFDM

Butter stole the show yesterday as an edgy trade manifested itself in limit higher prints through mid-2016 to the point where offers disappeared on the board following a spot call that ramped 6 ½ cents higher to $2.10, with a brisk 11 loads changing hands and a solid 5 bids left on the table. Yes, the yellow giant is alive and well and yesterday’s spot hike puts it back at mid-December levels, leaving the $2.00 mark untested and intact as the hedge interest we’ve been discussing materialized in earnest. Don’t be fooled by the low traded volume tallies either, as that is quite characteristic of moves such as yesterday’s and quite likely has raised the fear level from a yellow caution to a red panic.

This coming at a time when conventional wisdom should be suggesting lower price action as we’ve been in elevated territory for an extended period of time and overdue for the downside to be explored as cream is reportedly becoming more available, the holiday season is in the rearview and California is experiencing much needed precip and snow pack in the mountain regions. But if a market is unwilling to break on slightly bearish aspects, then look out, for the endurance of the bull has likely been underestimated. Adding to that argument would be Canada recently being forced to import 4,000 tons of butter to meet demand after stock levels dwindled to precariously low levels, and additional support has been lent to the market. This may have long lasting ramifications as well due to increased year over year demand from consumers. The recent price action only reinforces the likelihood that the floor has been raised on this market until further notice.

NFDM probed to the upside as well on a dose of short covering as the spot price creeps higher and exports remain solid. We’re not suggesting an out and out rally here, but the trade is due for a corrective bounce, not unlike what we’re seeing on the Class III side of things. There is the potential that the trade is aiming for an area to base support off of and if that turns out to be the case longer term, then the market has served its function of ratcheting up demand while curbing supply at historically low levels. That dynamic will likely take some time to play out though and we feel prices will remain range bound for some time. The catalyst that would warrant a sustainable rally just isn’t present with still sizeable inventories available, buyers already stocked up, a strong greenback, and the trade is still lacking the explosive purchasing power of a drastically weaker Chinese economy.     

For the week ending January 9th, the National Dairy Products Sales Report reflected a steady butter price at $2.04, on increased sales volume of 4,723,918 million pounds. NFDM was steady to a shade lower at $0.78 on decreased sales volume of 13,315,418 million pounds.

We expect the Class IV complex to open mixed with butter firm and NFDM mixed.



Two days removed from USDA and grain markets have a mixed feel as corn eked out fractional gains yesterday, beans tacked on a nickel while wheat shed 3 cents. Funds remain short the market and the action over the past couple days suggests they are lightening the load but not looking for a complete liquidation. We would expect volatility to stick around for a bit but action will likely return to the sideways to lower grind which characterized pre-report trade. Export sales are scheduled for release this morning at 7:30, CST with the trade crossing fingers that numbers come in better than last week's dismal showing (see expectations below). One developing aspect that should lend some support to the corn market would be of reports that there’s a corn shortage in southern Brazil, which could possibly lead to them importing from Paraguay and/or Argentina to counter the shortfall. 


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


EEX Futures

Yesterday was the third highest day on record for EEX dairy futures, as a total of 275 lots (1,375 tonnes) trading. The activity was on the butter and SMP contracts with mixed price action. 125 lots (325 tonnes) traded on EEX butter while 150 lots (750 tonnes) traded on SMP. Feb16 and Mar16 butter traded 5 lots each, settling up €1 and down €17 respectively. Apr16 traded 65 lots, settling up €22 for the session while May16 and Jun16 traded 25 lots each, settling down €10 and €20 respectively. Q2 SMP traded 50 lots per month yesterday with Apr16 settling up €20, May16 settling up €5 and Jun16 settled down €18 for yesterday’s session.

EU PSA and Intervention - See attached report for full details

It was a big week for volume of product offered into EU PSA and intervention last week, with high volumes for both SMP and butter. A total of 6,359 tonnes of SMP was offered into the intervention scheme, up from 3,748 tonnes . It Butter saw 3,990 tonnes offered into PSA, up from 1,880 tonnes for the previous week. The combined total for normal and enhanced SMP PSA was 2,085 tonnes, up from 1,918 tonnes a week earlier.

NZX Futures

The overnight session on NZX saw 685 lots/tonnes trading across the WMP, AMF and butter contracts, with all traded months settling lower. WMP traded a total of 425 lots, with 100 lots trading on May16 settling $30 lower, 250 lots trading on Jul16 settling $20 lower and 75 lots trading on Sept16 settling $30 lower. Feb16 AMF saw the only activity for AMF, trading 20 lots and settling down $50. Butter more activity as it traded 240 lots with Feb16 and Mar16 trading 60 lots each settling down $140 and $150 respectively while Q2 traded 40 lots per month and settled sown $150-$160 for the session.

Weekly New Zealand Cows Slaughtered

Data released by the NZ Meat Board showed the number of cows slaughtered (both beef and dairy) during week 11 of the season (week ending Dec 19th) totalled 13,222 head, down 18.5% on the same week a year earlier. Cumulative cow slaughtering for the season to date currently stands at 123,381 head, down 2.9% on the same point last season. Despite the slowdown in slaughtering compared with last season, the rate of slaughtering for the current season is still well ahead of the 89,052 head slaughtered by the same point of the  2013/14 season.

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