Morning Dairy Comments, 03/14/2016

Monday, March 14, 2016

General Market News

  • Fed Sits Tight on Rates But Hints at Hikes to Come
  • Shanghai market rallies 1.7%, buoyed by surging property stocks
  • China to set up maritime ‘judicial centre’
  • China’s PBOC flags stimulus restraint but says policy should be flexible
  • Eurozone industrial output surges in January
  • Tuesday is Free Ice Cream Day at Dairy Queen



Class III, Cheese & Dry Whey

Class III and cheese futures dug in their heels late week, effectively stemming the bearish tide as the market has been under pressure from both domestic and international perspectives weighing on the trade. Spot activity has all but ground to a halt, with only a couple loads being brought to the exchange last week and prices remaining basically range bound between $1.40 and $1.50, despite blocks opening the week at 2016 highs of $1.52 before retreating back to $1.50 on Friday. Class III futures had been drilled down to fresh lows and in the process any premium held to the spot equivalent, as far as the nearby contract are concerned, were vaporized while the forward curve took punishment as well. All said and done, by late week traders stepped away from any further drilling down and likely covered some short positions for the near term. It’s not that the fundamentals have changed, but more so that the market was ripe for a bit of a bounce heading into the weekend. Moving forward the trade will likely track spot price movement with a keen eye now that nearby futures are at near parity and will be focusing on tomorrow’s GDT auction to see if any follow through materializes from the 1.4% higher showing last event. Even still, the market faces some pretty stiff headwinds on the horizon (spring flush, which is underway) and if there’s any chance of sustained price recovery to look forward to it’ll be predicated on changing dynamics on multiple fronts – including currency fluctuations. If the USD continues its downside action started last week it could prove supportive for the export arena which in turn would be bullish to price action.

On that note, it bears mentioning that the April-June Class III strip was able to put the brakes on continued downside pressure and finished the week on positive footing, retracing back to early March levels and effectively muscling through initial resistance at the 10 day moving average (yellow line) and now looking to challenge more formidable resistance at the 20 day moving average at 13.64 (blue line) on the chart below. It may be a bit early to call a bottom here as we’ve mentioned, but if the market opens next week with some continuation and is able to close above the 20 day moving average, it would open the gate to further upside potential with a possible test of longer term resistance at the 50 day moving average at 14.11 (red line).

Stochastics are rising and nowhere near overbought levels with the same said for RSI, which registers at 46.72. With both indicators rising and having room to the upside, there is the possibility of a breakout to higher levels. That said, caution should be exercised as attempts at such a breakout have failed numerous times in the past and if repeated would likely lead to a retest of the lows.

April-June Class III Strip~Daily


Block cheese prices were down 2 cents on the week, to close at $1.5000/lb., in a market that saw no loads change hands while barrels ended the week 1 cent higher at $1.4700/lb., with 2 loads traded. Dairy Market News reports the cheddar cheese price for February 22 – March 4 in Oceania at $1.2474/lb., down 4.54 cents from the previous period.

From our European office report, Argentinian milk collections for January have fallen to their lowest since 2010 recent data has shown as pressure on international dairy commodity prices has taken its toll on production for one of the top five dairy exporters in the world. Collections for January totaled 788kt, down 5.5% on January 2015 and 7.6% behind the three year average for January. Data released earlier this month showed sharp declines in January milk production for Australia while New Zealand and US production were almost flat; these reductions look set to be more than offset by sharply higher EU production in January. Complete EU production data for January is expected to be available this week.

The midpoint Central dry whey mostly price was up 0.25 cents from the previous week, at 24.25 cents but 20.25 cents lower than the comparable period in 2015 while the midpoint Western dry whey mostly price was 25 cents per pound, unchanged from the previous week. For Central and West 34% whey protein concentrate, the midpoint of the mostly price was reported at 58 cents per pound, unchanged from the previous week, according to Dairy Market News. The Central and West 34% whey protein concentrate averaged 57.50 cents for February, 52.20 cents below 2015 but up 3.05 cents from last month. Dairy Market News reports the sweet whey powder price for February 22 – March 4 in Western and Eastern Europe at 27.22 cents per pound, unchanged from the previous period.

For the week ending February 27, dairy cow slaughter under federal inspection was up 7.02%, at 62,500 head, compared with the same period the previous year. Year-to-date slaughter levels are 0.3% higher than 2015 levels, with 552,500 head slaughtered.

We look for Class III and Cheese to open steady/slightly higher and dry whey to open steady.

Spot Session Results

























UP 2 







UP ½




Class IV, NFDM & Butter

Support continues to crop up around the $2.00 area in the butter market and last week’s trade was no exception. The trade has been willing to price in a premium to that of spot and has allowed it to move sub $2.00 without feeling it necessary to track lock step in the futures. This was evident over the past few sessions after the spot price slipped sub-$2.00 last Monday and remained there through the balance of the week. The supportive tones near the $2.00 mark for futures is reflective of the proactive approach by hedgers who have back to back record pricing years still on their minds. That said and with Easter purchases all booked, we’d be remiss not to mention there remains downside risk here. At some point and regardless of how proactive hedgers have been, they will step away from the market at some point once sufficient price protection has been put in place and a bearish skew presents. With cream readily available and multiples low, production remains strong and stocks are building which at some point should tip the scales lower and likely break the longstanding $2.00 support level.

The butter price settled the week at $1.9875/lb. with 11 loads changing hands, down 5.25 cents from last Friday. The price is 29.25 cents higher than in 2015. Dairy Market News reports that the 82% butter price for February 22 – March 4 in Western and Eastern Europe was $1.1964/lb., down 14.17 cents from the previous period. Oceania’s price was $1.3041/lb., down 5.67 cents from the previous period.

NFDM futures rocketed higher to wrap the week as the spot price nudged back toward the $0.80 and sparked a round of short covering in the process. By the time the dust settled, nearby contracts were more than penny in the green while deferred Q4 contracts had posted limit higher prints. The market has been consolidating the lower price action it sustained over the past few months and was ripe for a pop to the upside. Technical areas rest just to the north from current price levels, so the next test will be whether the trade has the mojo to muster through those levels and open the door to a broader, more sustained recovery (see red line on chart below).

October-December Strip~Daily

NFDM exports have been a bright spot for the dairy complex, logging a 23% gain from year ago levels and the highest January tally on record last month. That said, one only needs to look at the global export arena to see that the EU has done remarkably well in expanding its market share under difficult supply issues, which stemmed from the removal of the quota system, as well as the void left over from Russia’s trade embargo. Consider as well that massive volumes of SMP that continue to find its way to EU intervention programs, which will loom as a shadow over the market for some time.

The NFDM price was up 3 cents at 77 cents per pound, with 25 trades this week. The price is 22.25 cents below last year’s price. Dairy Market News reports the midpoint Western nonfat dry milk (NFDM) mostly price at 74.50 cents per pound, down 0.50 cents the previous week. The California Department of Food and Agriculture (CDFA) reports the weighted average price received for NFDM sold by California processors was 75.90 cents per pound for the week ending March 4, down 1.72 cents from the previous week. The price is 23.68 cents below 2015. Volume was reported at 12.31 million pounds, 5.98 million pounds above the previous week and 2 million pounds higher than 2015. Dairy Market News reports that the skim milk powder (SMP) price for February 22 – March 4 in Western and Eastern Europe was $0.7825/lb., down 1.70 cents from the previous period. The price in Oceania was 79.95 cents, down 2.26 cents from the previous period.

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


NZX dairy markets were relatively quiet so far this week ahead of tomorrow’s GDT auction. 
New Zealand slaughter statistics showed while the rate of slaughtering year to date remains behind the pace of last year (which saw exceptionally high cow slaughtering numbers), the numbers slaughtered continue at a high pace. A total of 18,844 cows were culled during week 19 of the season (W/E Feb 13th). The NI accounted for 15,562 of the total slaughtered while the SI accounted for 3,282 head of the total. The cumulative number of cows culled for the current season to February 13th stands at 214,080 head, 9.5% behind the 236,517 head slaughtered by the same point last season. To put this in context, 154,619 cows were slaughtered by the same stage of the 2013/14 season. It’s worth noting that the statistics for cow slaughters accounts for all cows slaughtered and does not distinguish between beef cow and dairy cows slaughtered.



Grain markets firmed over the past week as commodities at large are finding their way back into the fold after months of bearish price action left many commodities at or near multi-year lows. March corn managed to gain 11 ½ cents over the week, while March beans tacked on 17 ½ cents and the November bean contract posted a 15 ¾ cent higher settlement, as evidenced on the chart below. Friday’s close in the green extended the winning streak to 8 and propelled it through long term resistance at the 200 day moving average (black line on chart below) which now has action poised for a test of the early December high of 9.26 ½.There’s been a decent level of chatter regarding the El Nino/La Nina transition and the possibility of adverse weather conditions during the 2016 growing campaign. While it’s too early to make a determination on this, the fact that it’s being deemed a potential threat will be enough for a certain amount of risk premium to be maintained in the futures and could lead to a fund induced short covering rally.

November Soybeans~Daily


We look for Corn and Wheat o open steady/mixed and Soybeans to open 1-3 lower.

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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