Morning Dairy Comments, 01/15/2016

Friday, January 15, 2016

General Market News

· After falling triple digits Wednesday the Dow was up 228 yesterday! Wild times for all markets it seems

· Fed’s Bullard favors 4 rate hikes in 2016

· Bearish sentiment on equities spiked to a 3 year high of 48.2% of respondents

· Would you believe after the whipsaw of the past two days that the Dow is set to open nearly 300 points lower this morning!

· Oil dips below the $30 mark



Class III, Cheese & Dry Whey 

January is an odd time to visit the amusement park in Chicago but it sure seems like that’s exactly what these markets are of late! Class III is the old reliable wooden roller coaster making ‘moderate’ up and down price swings, NFDM and whey are like some underground rollercoaster, its dark and it’s hard to see where we are going and butter, well that’s the big attraction, the world’s tallest fastest new ride! The class III market started strong and mostly finished that way despite a lack of movement in the spot session yesterday. The February contract was the leader throughout the session rallying nearly 20 cents pre-spot and finding more support after the spot butter market ran up. We finished the day 30 cents higher but a bit off the intraday highs. We finished stronger but off the highs for most of the 2016 contracts as March through December were 1 to 10 higher on the day. It’s a tricky spot now with the charts as we’ve bounced very near resistance levels and failed a bit today but still would seem to have some upside momentum for the moment. Below we include the March daily chart where you can see we’ve held the downtrend to this point but should we move to the upside to close the week there is very little resistance between our $13.99 settlement and the $14.40 level.

Class III March~Daily


Interestingly settlements were more mixed on cheese futures with Feb up 0.029 but March through December mixed from -0.004 to +0.008 on the day. The divergence between class III and cheese appeared to be driven by some spillover buying interest in the dry whey futures. Settlements there ranged from steady to +0.500 on the day from Feb through December though volume was extremely light with just 12 trades taking place. Weekly DMN prices were mostly higher on whey with the Central mostly price up a penny on the lower end of the range from 20 to 25 cents and the western mostly price unchanged from 22 to 26 cents. The lactose and WPC mostly prices were also up ½ a cent on their mid-points as well.

Weekly cow slaughter was slow to start the year at 43,500 head down 9.8% from the same week a year ago.

We expect Class III and cheese to open mostly higher, whey steady

Spot Session Results
































UP 5 ¼




Class IV, Butter & NFDM

As mentioned above the butter market continued to steal the show yesterday as we finished limit up in a number of months and will have expanded limits to 20 cents today. We contacted the exchange yesterday as the rule book does not state what would happen should we hit the 20 cent limit today. They told us if we hit the limit of 20 cents today, limits will then be expanded to 30 cents.  On subsequent days that we hit limit they will be expanded by 5 cents a day.  Once limits are not hit they will be reverted to 20 cents and decrease based on the normal rules from there. While this seems incredibly unlikely to happen we wanted to verify just in case.

Time will tell if this rally once again becomes parabolic in nature like that we’ve seen each of the past two fall seasons but we’d imagine that there will be some additional volume above the 100 trades we saw yesterday, 68 of those coming in January. Prices would be able to reach into the $2.40’s should they need too but we believe some additional selling will crop up as futures near the $2.30 level. It’s difficult to imagine that the upcoming Easter holiday will carry as much pricing weight as we’ve seen around the Thanksgiving season and thus it’s hard to fathom a rally toward the $3.00 mark as we’ve seen. With the rally starting this early however, we have a lot of time to cover on the calendar before the ‘holiday’ buying would come to an end…

NFDM took a bit of a backseat after trading massive volume recently, we saw less than 90 trades take place as futures finished steady to 0.675 cents higher on the day. We’ve heard rumblings of a drying plant closing in the Southwest amid the loss of milk due to the big winter storms but even with that news it is difficult to imagine a sustained rally on NFDM prices. We suspect the buy side interest is being more driven by spillover strength from the other dairy products. Perhaps the GDT auction next week can change the narrative though. DMN prices were softer on both of the mostly series. Full weekly pricing included below.

We expect the Class IV complex to open higher with butter leading the way and NFDM mixed.




It was a mixed day for the grains as they mostly moved in the direction of the export sales estimates today. Corn finished unchanged at 3.58, soybeans were up 2.25 cents at $8.8225 and wheat was down sharply by 9.25 cents to $4.6875. The weekly exports sales report today showed corn exports at 26.3 million bushels in line with estimates for 15.7 to 25.6, soybeans were 41.4 million bushels vs. expectations for 33.1 to 47.8 million bushels and wheat exports were 10.7 million bushels vs. expectations for 5.5 to 12.9 million. It seems as though some of the momentum to the upside that may have existed after Tuesday’s report is coming out of the marketplace and for the most part the charts continue to look mostly bearish. We wouldn’t expect big movements to finish out the week but as we get into February and nearer further reports it will be interesting to see how the fund position is rebalanced.

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


Irish Milk Collections for November

The latest data released by the Central Statistics Office in Ireland showed the strong pace of milk production in Ireland continued for November. Collections for November totalled 363kt, an increase of 48.2% compared to November of last year, and 23.6% ahead of the three year average. Total collections for the Jan-Nov period, stand at 6.412mt, up 13% on last year’s cumulative total for the same period. Irish milk production is very seasonal, matching closely to the grass production curve, with Nov-Jan the low point of the year. Very good grass growth and grassing conditions during Sep-Nov was very advantageous for milk production in 2015, while during the same period in 2014 farmers had started to moderate production, as a large proportion were over quota and the spectre of large super levy fines was on the horizon. 

NZX Futures

It was a little quieter on NZX overnight, as 490 lots/tonnes traded on WMP and butter, with more positive price activity than recent sessions. On WMP, May16 traded 120 lots settling up $30, Jul16 traded 100 lots settling up $20 and Aug16 traded 150 lots settling unchanged. All butter activity took place for Q2 with 40 lots per month trading and all lots settling $20 higher.

GDT Offered Quantities for Trading Event 156 on January 19th

Next Tuesday’s GDT auction, the second of the 2016, will see a total of 21,065 tonnes of Fonterra NZ product on offer, down 12.5% from the last auction. The second auction of the month normally sees lower overall offered volumes, with limited or no contract 1 offering. WMP sees the biggest reduction from the 5th January, down by 22.3% to 10,600 tonnes. This is an extra 4.5% reduction from the last forecast, with all of the reduction in contract 6 – which sees volume reduced by 500 tonnes (67%) to 250 tonnes. The 12 month forecast supply for WMP is unchanged overall, but there has been some shuffling between contract months. Contract 6 forecast volume has been reduced by 7.5%, but counteracting this has been increased volume for contracts 2, 3 and 5.

Fonterra NZ SMP sees no change from the last auction or previous forecasts, with 4100 tonnes on offer. The 12 month offer volumes remain unchanged at 126,950 tonnes, but like WMP there has been some movement between contract months, with contracts 4,5 and 6 seeing reductions in forecast volume and 1100 tonnes added to contract 2.

AMF sees the only increase in product, with an additional 4.8% (125 tonnes) over the last auction and forecasts, with the extra volume split between C2, C3 and C5. The AMF 12 month supply forecast has also been increased, with an extra 1.4% (1100) added, bringing it up to 77,500 tonnes. The next three auctions also see the AMF offer forecast increase, with 2nd Feb up 7%, 16th Feb up 11% and 1st Mar up 6%. No surprises among the other products, all unchanged from the last auction and forecasts.

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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