Morning Dairy Comments, 01/27/2016

Wednesday, January 27, 2016


· Gas prices at the pump are lower in Houston than Abu Dhabi for first time since 2008

· Market forecasts suggest a 100% chance the Fed won’t raise rates today but they expect a not so dovish statement that pushes back on low, 30% expectations of another rate raise later this year

· Apple stock down after reporting record quarterly earnings; first forecast for declining sales since 2003

· Italy has reached a bad bank deal with the EU to help lenders offload bad debt to avoid violating EU state aid rules

· Trump to boycott Fox news Republican debate

Class III, Cheese & Dry Whey 

“When you get to the fork in the road…take it!” It’s one of my favorite quotes and so appropriate for where both Class III and cheese futures currently stand, as market participants continue to hash out the status of the domestic cheese trade and what the future will hold at the IDFA conference in Phoenix.

Yesterday served to stem the bearish tide a bit as the spot cheese call came and went for a second session without so much as a whisper, while the futures market quietly consolidated its recent downdrafts, which have brought many contracts to fresh lows. Fundamentally speaking, not much has changed as the long list of bearish aspects continue to weigh on price action with the money question being, will domestic demand continue to prove sufficient enough to warrant price support at $1.40 as far as cash is concerned? That level has been tested and has held more than a few times, with ensuing northbound retracement to the vicinity of $1.50 coming on the heels only to run into headwinds. How many times can we trod that trail? As with any market, the answer is finite and limited. We won’t stay range bound forever and we feel the market is headed for a breakout sooner than later. The trade has likely digested the latest news, a 0.7% hike in milk production coupled with the 12.56% spike in total cheese stocks in the latest cold storage tally, both of which are now collecting dust in the history books. The fact is, the trend to the downside remains intact as the bear continues to dig his claws in, unwilling to relinquish control and spanking the bull back into submission every time he makes an appearance. That dynamic is unlikely to change until an external force weighs in and as we scan the horizon, that elusive game changer remains just that—elusive. 

For the time being…two charts to consider. The first is the February Class III contract, which is heading into a wedge pattern that is suggestive of a breakout. The second is the March Class III contract, which has been blunted by initial resistance at the 10 day moving average of late (yellow line).



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

Spot Session Results
































UP 2 ½  



Class IV, Butter & NFDM

And the butter market churns on with solid buy side interest continuing to materialize on just about any bit of price weakness as evidenced by yesterday’s performance, which saw contracts through August posting gains on the heels of a spot market that looks poised to challenge not only the $2.20 level but perhaps the $2.40 level. With back to back record pricing years and $3.00 butter on the brain, the trade is taking a proactive stance toward hedging risk, as to some the thought is that $2.20-$2.30 butter looks a whole lot better than it did a  few years ago, despite the S&D tables.

The NFDM market looks to find some stability amidst the recent carnage it has endured as the spot price has held steady, north of the $0.70 mark on brisk volume. Yesterday’s action featured a bit of bull spreading as the front months, which have been drilled down upon, were bought back up while the deferred contracts, which still remain a bit juicy, were sold off. That action worked to flatten the forward curve a bit, but likely has more to be done. 

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


The grain trade attempted to shrug off turnaround Tuesday price action but by the end of the session, that effort proved largely futile as both corn and beans fell into the red, however wheat did manage to keep its head above water to post modest gains and keep somewhat bullish forces intact (not much confidence in continuum there). A few things to consider moving forward, the most dominant being the large net short position held by fund managers, specifically corn, which could prove to be the catalyst for upside price movement if they decide to bail. Other dynamics shaping the trade would be chatter that Russia may limit exports of wheat due to hyperinflation concerns and an unstable Ruble. This coming on the heels of winter kill concerns in the FSU as well as dryness issues stemming out of India, which may lead to shortfall. That said, the world is in no danger of running out of the stuff, so upside potential remains limited.

To the south, crop stress in Argentina is on the radar but yet to really spark fund managers to begin covering their massive short position in corn as a massive harvest is likely on the docket. Couple that with slumping export sales and there lacks the impetus for anyone to begin to stress, let alone hit the panic button. Fact is, China is looking to rely on their domestic stockpiles and are turning to other regions to satisfy additional needs. DDG movement is also expected to slow to a trickle, as the Chinese scrutinize for traces of GMO’s in imported batches. Couple all of this with a relatively strong USD and you get the picture, the upside is limited until further notice. Rallies to be sold. Acreage battles will come into play, but that remains a limited aspect for the time being. One thing to keep on the radar though would be the transition from El Nino to La Nina, as there is the potential for a bumpy ride come next growing season. A few things of fundamental/technical note on the March corn chart would be 1) it is holding above the 50 day moving average as indicated by the red line, 2) an inverted “head and shoulders” pattern is emerging, which could prove bullish if held intact in the coming sessions, and 3) although technically not demonstrated here, a continued push/retracement to the upside in the crude oil market would also lend support, as there has been some chatter that OPEC is considering a reassessment of current policy, possibly crimping the floodgates a bit. 

March Corn~Daily


We look for a mixed opening in the grain complex today


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