Morning Dairy Comments, 02/03/2016

Wednesday, February 3, 2016

General Market News

· ***Dairy Products Report this afternoon***

· Yahoo to cut 15% of staff and explore sale options

· US crude supplies up 3.8 million barrels, prices back below the $30 mark

· Bank of Japan minutes show internal split on stimulus

· Nikkei down 3.2% overnight as sharp losses continue in Asia

· China says it expects growth to stay at 6.5-7.0% for GDP



Class III and Cheese

Yesterday’s GDT auction results coming in down 7.4% overall set the tone for the markets. Once the dust settled though Class III futures managed to chop slightly higher. There was no activity in the spot cheese market and this was viewed as supportive. The fresh cheese market feels tighter although aged cheese inventories are heavy which will keep the market in check.

Traders will scrutinize today’s dairy products report. One thing that should be considered is the growth in mozzarella production had been rather flat in 2015 vs the growth we saw in 2014. Less milk in California and less export orders may be the synopsis here. Mozzarella export competition is stiff especially to our large Asian markets. This is a factor to watch closely as milk may be flowing more into American style production which will add to already heavy inventories.

We also expect to see the trend of less WPC34 production into the higher protein products as it pencils out better returns. This will continue until WPC34 trades more within its value in relation to other proteins.


We look for Class III and cheese to open mostly lower, whey steady.

Spot Session Results

























DOWN 1 ½







UP ¼ 




Class IV, Nonfat, and Butter Futures

On the 2nd official day of spot butter trading with Grade AA certificates the market ticked up a ¼ cent to $2.10. Butter futures trading started the day off soft but finished off the lows on good commercial hedging interest. The market feels supported here and the fact Monday we traded limit down, and yesterday futures were relatively in balance adds credence. On today’s dairy products report we are expecting 175.4 million pounds of production, up over 3.3% which will likely be a non-event. Traders will keep an eye on production in California’s numbers again.

The GDT auction did not share much enlightening news on the global markets, but just reinforced the existing fundamentals. Without China in the picture still we struggle to see how other importers can pick up the slack. This is in the face of some major importers like Algeria or Venezuela’s treasuries hurting from the lack of oil revenues.

The spot NFDM session dropped ½ a cent yesterday to 69 ½ cents. Futures traded lower although finished off their lows, and traded higher in the overnight session. CWAP came in at 0.7935 cents on a lackluster 6.9 million pounds of volume. There are some bids floating around in the mid to high 60 cent range which may clear some volumes in the following weeks.

We expect butter to open steady to higher, NFDM higher and class IV firm. 
NZX Futures

NZX futures were sharply lower overnight after the GDT event. As you can see below the largest declines were seen on WMP and butter. Even SMP which was higher on GDT than futures were saw declines yesterday. Given these results it appears that the marketplace is expecting to see further declines in pricing moving forward.




Yesterday featured continued short covering by the money managers in corn. Funds were estimated by the trade at buying back 9,000 of their near. 90,000 short position (Yellow line below). Last week’s CFTC report showed funds covered 70,000 more than the market estimates as commercial traders quietly sold.

We expect grains to open steady to slightly lower across the board today.




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