Morning Dairy Comments, 03/01/2016

Tuesday, March 1, 2016


General Market News

  • GDT Auction underway
  • Trump and Clinton look to widen leads on this Super Tuesday
  • Glencore CEO: Commodity markets have hit bottom
  • India pledges billions for farmers in ‘make-or-break’ budget
  • The a2 Milk Company is rocking the dairy world
  • U.S. firms in southern China upbeat
  • Judge sides with Apple over feds in New York


Class III, Cheese & Dry Whey

Yesterday we saw Class III open slightly higher, slowing picking up steam and building off gains made late last week before coming down off its highs and settling in the middle of yesterday’s trading range. This marks the third trading day in a row in which Class III and cheese closed higher. Despite the recent uptick in prices, futures have yet to fully recover from the three day sell off last Monday through Wednesday. 1 bid on spot barrels went unfilled which closed 2 ½ cents higher to $1.455/lb. Blocks went UNCH at $1.48/lb, keeping the spread between the two at a comfortable level.  Whey finished mixed yesterday on 8 trades.
At current price levels it’s hard to find a dairyman that is comfortable with these margins. Which brings up the question of when prices will recover; a topic talked about frequently amongst producers for the last several months. It seems as though no matter when this subject is brought up, let it be last December or now, the consensus is 6 months down the road. In December, talk was for prices to increase at the start of Q3. As more time passes the proverbial ‘can’ continues to be kicked down the road with ruminations of a recovery starting in Q4 or the start of 2017. One reason for the shifting timeline is that producers have not yet been incentivized to slow production dramatically. Sure margins are not great, but input costs are still at 10 year lows, and domestic demand is strong enough to insulate prices from the disaster that is international dairy markets.
While U.S. milk production is not necessarily going gangbusters relative to growth we’ve seen in the past, the US remains in an oversupplied environment today. What needs to happen in order to get out of this oversupply environment is for demand to increase or margins to narrow to a level that will cut production. Income over feed for January 2016 was at $8.59/cwt, higher than 4 months in 2015 and 80 cents lower than the 5 year average. An 80 cent deviation from the 5 year average is not necessarily going to turn this market around. A hot dry summer can eat away at margins – and production - quickly, so the developments of El Nino/La Nina weather patterns and its effect on yields will have to be watched closely. 

CSO data released yesterday showed Irish milk collections for January totaled 137.1 million litres representing a 19.5% increase year on year. The gap between 2015 and 2016 collections for January is further amplified by the restrictions on production in the first three months of 2015 due to super levy penalties looming over producers.

Data released by Dairy Australia last week showed Australian collections for January totaled 825kt, down 3.8% year on year and 0.6% behind the three year average for January. Despite the fact that Australian collections for the 2015 calendar year totaled 10.02 million tonnes, up 2.2% on the previous calendar year, collections for the 2015/16 season (Jul-Jun) now total 6.45 million tonnes, 0.6% behind the same point last season. In milk solid terms, Australian collections for January totaled 61.75 million kgMS, down 3.16% year on year.

We look for Class III and Cheese to open steady slightly higher, Dry Whey called steady.

Spot Session Results











UP 3 







UP 2 ½







UP ½







DOWN 1 ¼ 




Butter and Non-Fat Futures

NFDM not butter has been the bullish component of Class IV the last two weeks.  Spot NFDM has railed 3 1/2 cents since 2/9 settling yesterday at $0.765/lb, while during that same time frame spot butter has slipped 17 cents settling at $1.9650/lb. Gains in NFDM do not however make up for the loses in butter. The 17 cent lose in butter and 3 ½ cent gain in NFDM comes out to a 40 cent lose in a spot equivalent Class IV price. NZX futures have been stepping to higher, that coupled with support on the domestic front as well as 4 previously lower GDT auctions points to a steady to higher GDT Auction today.

The physiological $2.00/lb barrier on butter that was broken last week for the first time since July of last year has not opened the floods gates and driven prices significantly lower. Instead what we are seeing is strong buy side interest in and around $2.00/lb. In fact none of the 2016 butter futures contracts are trading below $2.00/lb, even after closing lower yesterday. Memories may be starting to fade after several months of bearish production and cold storage reports, as we could start to see buyers sit on the side lines and wait for prices to come to lower levels before locking up additional product.  So far, however, buyer complacency hasn’t set in.

We look for Butter. NFDM and Class IV to open mixed.


Corn settled down yesterday on lackluster export inspections that continue to fail to make pace with USDA expectations from the 2015/16 crop year. March soybeans settled below its 2 month long trading range as harvest in South American continues to put pressure on the soybean complex even though soybean exports are on pace to meet USDA export expectations. 

Crude and the Stock Market were helped by news of China’s Central Bank’s stimulus plan for their economy. The April crude now sits just under its 50 day moving average of $34.09 a barrel at $33.83/barrel.

We expect Corn and Wheat to open mixed and Soybeans to open 2-3 higher.

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