Morning Dairy Comments, 03/04/2016

Friday, March 4, 2016

General Market News

· NZ no longer has global dairy market to itself, English says

· Dairy producers rebuild post-blizzard herds, form safety plans for next storm

· US ends Dutch beef trade ban

· Chick-fil-A offers free ice cream for customers who put away their phones



Class III, Cheese & Dry Whey

The class III and cheese markets saw sizeable gains in the nearby months as the spot market turned around and moved higher. From March through June futures were 12 to 22 higher on class III while deferred contracts were -2 cents to +8 cents. The gains came as spot blocks were higher by 2 cents while the barrels were up 1 ¼ cent. Volume was firm with over 1,000 trades occurring and most of those were in the nearby months which saw larger price movements. Cheese futures followed much the same pattern but saw more lower settlements in the second half of the year than their class III counterparts did. From March to July settlements were +0.002 to +0.017 but from August forward settlements were unchanged to -0.009. Despite the pop in pricing yesterday this feels like a still heavy market and that was evidenced by the dairy products report released yesterday afternoon. Full results below. While there may be continued buy side interest in short spurts the inventories the market has built up continue to loom and seem likely to overwhelm the short term buying spurts when we move to fresh lows. With flush around the corner and warm temps expected in the upper Midwest you can almost hear the rumble of the oncoming milk wave.

Whey prices were firm yesterday as seemingly tries to round out some type of bottom. Weekly DMN prices were steady to slightly lower and the dairy products report looked bearish as well so while there are some rumblings of a continued climb for whey prices and we tend to lean more bullish than bearish in the short term, one has to question just how much of a rally we may see….certainly our feeling is anything with a 3 handle ought to be sold should we get there.

Weekly dairy cow slaughter was 58,800 head which was up 2.6% vs. the same week a year ago and brought us nearer last year’s pace, now down just 0.4% year over year.

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

Spot Session Results











UP 2







UP 1 ¼














UP 4  




Dairy Products Report

The Dairy Products report released today contains estimates of January 2015 dairy product production, as well as manufacturer’s end-of-month stocks for dry proteins and lactose.

Our interpretation of this report is as follows:

  • Butter—bullish. Butter production in January fell below the 5-year average for the month to 175.74 million lbs. to fall 2.14% beyond the production rate last year while up 1.63% from December.  Production for the month of December though was revised 4 million lbs. lower making the month over month gain misleading.  The butter market should see additional strength in the near term.
  • Cheese—bearish. January American cheese production was 400.38 million pounds, slightly above our expectations, while other cheese bested expectations by almost 6 million lbs. to a reported 602.78 million lbs.  The 5-year average for total cheese production for the month sits at 932.4 million lbs. while total production this January reached 1.003 billion marking a 10.8% increase above the norm.  American cheese production beat its 5-year average by 6.4% which should lead to further price weakness in the cheese market. 
  • Nonfat dry milk— bearish.  Nonfat production slowed more than expected, falling below the 5-year average for January, to 136.15 million lbs. marking a 17.43% decline year over year.  Despite the decline in the production rate NFDM inventories increased by 10.7% from December to 226.64 million pounds.
  • Dry whey—bearish. Whey production was 82.97 million lbs., increasing by 9.8% year over year while falling 12.1% lower from December.   Whey inventory levels lend to the bearish undertone of the market, jumping 14.80% higher month over month to 83.44 million lbs. while posting a year over year increase of 32.6%. 
  • WPC—bullish.  WPC production was 38.80 million pounds, down 5.2% from December and down 17.7% year over year.   WPC inventories fell 5.3% year over to 65.15 million pounds, declining 2.1% from December.
  • Lactose—bullish. Lactose production fell 3.1% from December and was 5.5% lower year over year at 85.13 million pounds.  Despite the slumping production Lactose inventories grew by 11.90% since December to 117.28 million pounds while still sitting 10.5% lower than during the same month last year.  

Dairy Production Highlights, January 2016 (%Change Year Over Year):

American cheese production,  400,378 thousand pounds, up 0.90%
Mozzarella cheese production,  336,570 thousand pounds, up 0.30%
Butter production,  175,740 thousand pounds, down -2.10%
Nonfat dry milk production,  136,150 thousand pounds, down -17.40%
Skim milk powders production,  51,243 thousand pounds, up 17.30%
Milk protein concentrate production,  14,879 thousand pounds, up 6.80%
Dry whey total production,  82,969 thousand pounds, up 9.80%
WPC total production,  38,797 thousand pounds, down -17.70%
Lactose production,  85,128 thousand pounds, down -5.50%

Inventory Highlights, January 2016 (%Change Month Over Month):

Nonfat dry milk inventory,  226,642  thousand pounds, up 10.90%
Dry buttermilk inventory,  21,304 thousand pounds, up 24.90%
Dry whole milk inventory,  13,065 thousand pounds, up 14.90%

Dry whey inventory,  83,439 thousand pounds, up 14.80%
Lactose inventory,  117,279 thousand pounds, up 11.90%
WPC total inventory,  65,155 thousand pounds, down -5.30%


Class IV, NFDM, Butter

Turnaround Thursday? That would be a new one for the vernacular! But that’s exactly what we saw from both butter and NFDM in yesterday’s session. The butter market opened firmly and only added to the gains when the spot market jumped above the $2.00 mark. A number of contracts settled limit higher (June through September) but nearby months backed off their highs late in the session and April was up only 2.50 cents vs. a 4.175 cent gain for March and a 4.975 cent gain in May. Volume was relatively light at just over 100 contracts and the majority of the volume, nearly half, was traded in April. The recent slide below $2.00 was the first time we’ve done that since August of last year. It doesn’t come as a huge surprise that buyers are willing to step in as the spot market sets fresh lows and we still have a few sessions where this could be considered Easter demand but we view today’s move as a short term pop likely to make it easier to slide lower the next time the market gets downside momentum. Overnight the contracts that settled up the limit were unchanged or a few ticks higher as the market may wait to see how much follow through there is on the spot session today before futures run too far ahead.

The NFDM market also saw a sharp reversal yesterday but unlike butter NFDM moved back to the downside. Settlements ranged from 1.825 to 2.975 from April through December and volume was massive at over 600 trades. Interestingly while other markets were responding to the spot session movements the NFDM spot market was unchanged. Perhaps it was just a correction in an overbought market (if that’s the case it may be a healthy correction for the bulls) or perhaps it was due in part to the dairy products report being released but in any case it’s a correction that must be watched as this is the first time in some 10 sessions that the April to June pack dipped below both the 10 and 20 day moving averages. The bulls will need the market to quickly move back above those levels to maintain technical momentum and that may require further spot market strength.

We look for the butter to open higher, non-fat lower and Class IV to open firm.




A sharply lower USD, a big fund short and some (I do mean some) confidence in the equity markets seems to be driving a little equity back into the grain markets. The markets finished mostly higher for the 2nd consecutive session generating some chatter of a potential bottom in the marketplace. Certainly the conditions exist for a potential turnaround with the factors mentioned above but from a fundamental grain centric standpoint the SA harvest is finishing up, weather forecasts are warm and dry (conducive for planting) and weak export sales (despite a good showing this week) all seem to point to more downside than upside. Only time will tell but for grain end users who have been sitting on the sidelines it may make sense to pick up a portion of old crop needs, particularly in light of the recent basis declines, and explore new crop call options as well. The August short dated new crop corn $4.10 calls settled at 11.125 cents yesterday and we think represents a good value buy for end users given the expected la nina weather condition risk this summer. Please call to discuss your specific situation.

We expect corn and wheat and soybeans to open moderately higher.



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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