Morning Dairy Report, 03/10/2016

Thursday, March 10, 2016

General Market News

· ECB lowers benchmark interest rate to 0.00%

· Jobless claims fall to 5-month lower of 259,000

· New Zealand cuts interest rates for the fifth time since June

· Russian meat industry braced for bankruptcy

· SEC slaps California water district with record fine



Class III, Cheese & Dry Whey

Markets continue to slide downwards as stocks build and demand wanes along seasonal patterns. Class III futures slipped lower through 2016, by as much as 17 cents, with November and December posting the biggest declines. Futures trading volume was subdued during this latest bout of price weakness, however, with only 803 contracts trading for class III yesterday. Cheese futures actually saw better volume posting 843 contracts trading, which speaks nicely to the shift we’ve seen more recently. Cheese futures open interest surpassed class III on February 27 and the chart below shows the sustained growth of the cheese contract since its inception. (NOTE: over 2,800 class III options traded yesterday compared to just over 400 cheese options).


This afternoon the USDA will released their latest Commercial Disappearance tables for February, which we anticipate will continue to show a strong influx of imported cheese. In 2015, we saw 345 million pounds of cheese imported, a 22.8% increase YoY.  We know that markets tend to change direction before everyone understands why, but thoughts of a sustained cheese market rally given the current news seem unlikely.


The QSR space may continue to be a bright point on the demand side.  The latest Restaurant Performance Index, released by the National Restaurant Association for January 2016 pushed above the 100 level, signifying expansion.  While December’s number fell below the 100 level, this index has remained above the 100 level for nearly 33 consecutive months.

NDPSR for the week ending March 5th show prices received for blocks averaged $1.50, an increase of 0.1 cents from the previous week.  Barrels averaged $1.50 per pound, a decrease of 2.4 cents from the previous week. Dry Whey averaged 25.3 cents, a decrease of 0.6 cents from the previous week.

We look for Class III, Cheese and Dry Whey to open mixed.

Spot Session Results

























UP ½ 











NFDM & Butter

Butter futures were weaker in most months, with the exception of November and December. With that said, the 2nd half pack is now trading near $2.0738, off its high of $2.3117 made back in mid-January. Although lower, we expect continued commercial buying into any weakness in the 2nd half contracts, especially in light of what butter prices have done in Q3/Q4 of the previous 2 years. As with cheese butter inventories should be building, however, do not discount some last minute demand ahead of an early Easter.

After Tuesday’s battle, the dust settled on NFDM spot yesterday, which finished up ½ cent to 75.50 on a lone bid. Futures posted an uptick in volume, 544 contracts, as prices sank through November 2016. Interestingly, open interest declined by 150 contracts, which has become somewhat of a pattern here over the past week. We’re seeing price weakness and declining open interest. This tells us that the sell side is, by and large, not new positions being taken but rather long-liquidation. Aggressive long-liquidation at current price levels may have less to do with market opinion and more to do with external business factors. We hear of deals on physical being done at lower than CWAP or NASS and we’d expect more sell side activity on spot, possibly resulting in another run at the price lows. But the long-liquidation in futures gives us pause. How many new NFDM futures sellers are going to be there after whatever is going on is over?

NDPSR for the week ending March 5th shows butter prices averaged $2.03 per pound, a decrease of 4.1 cents from the previous week.  NFDM prices averaged 76.3 cents, a decrease of 0.5 cents.

We look for the Butter to open slightly higher, NFDM and Class IV to open mixed.


The USDA gave us a boring report yesterday. The trade was looking for steady-to-higher global 2015/16 carryout figures for corn, soybeans and wheat, but instead got 1.3-1.8 MMT declines in all three crops. The markets reacted to the news by trading both sides of unchanged (corn a little lower, beans a little higher). Grains are called to open slightly lower this morning. With the report behind us, the trade is focused on weekend rains and a strong US dollar, which is trading sharply higher this morning.


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