Morning Dairy Comments, 03/15/2016

Tuesday, March 15, 2016

General Market News

· ***GDT Auction this morning***

· Crude prices fall nearly $1.00 yesterday

· Farmland partners closes $197 mln deal for 22,000 acres in Ill.

· North Korea threatens to test new nukes, missiles that may reach US

· Brazilians turn out in record numbers demanding ousting of President Dilma

· US dollar poised to gain 10% or better, even if Fed holds on rates

· Dow closes Monday at 2016 highs



Class III & Cheese

Pre-spot markets were quiet as participants have been inundated with negative information: from depressed crude oil prices, continued world economic sluggishness, increased imports into US, Russian EU import ban stalemate, strong dollar, etc…

Add additional Fonterra price weakness, EU intervention expansion and other potential measures (discussed further below), anticipated additional builds in Cold Storage (3/22), milk production (3/18) and a seemingly early “spring flush” we found ourselves looking to spot for additional directional information.  Spot cheese fell and markets reacted swiftly dropping as much as 23 cents in July class III.   Cheese fell 2 ½ cents. 


The chart above shows the average spot block/barrel cheese average in comparison to April cheese futures and we see the futures recognizing the weight of the above mentioned influences.  Futures are struggling to react to positive moves in spot.

Expect rallies to be short lived as sell side interest clamors to get additional coverage and/or traders add to short positions in a bearish market.  Buy side interest has been passive.  We get GDT today and milk production Friday.

We look for Class III and Cheese to open lower.

Spot Session Results











DOWN 1 ¼







DOWN 2 ¾







DOWN 2 ½







UP ½




NFDM & Butter

Spot butter dropped 4 ¾ ¢ and futures reacted, closing limit down in April and the lowest spot price since August.  Looking at the chart below we see spot butter prices continue to fall from a January inter-year high to eclipse all the gains since August of last year.  If we recall, as of February 1st the CME spot market butter specs were adjusted to allow Certificate of Analysis (COA) documents in lieu of USDA grading certificates as acceptable documentation for spot butter delivery.  This looks to have accomplished the intended purpose of increased participation in the spot call.  Ultimately the job of the spot/futures market is to be a price discovery mechanism and removing participation barriers should increase liquidity and create more accurate pricing.  Were we really short butter or just short of USDA certified Grade AA butter?


Nonfat is and will continue to struggle as we swim in a sea of milk powder.  I would expect many participants are looking to GDT for direction. 

Expected volumes for today’s GDT are forecast to be lower which may bring additional price increases to the auction.  On the surface this could be construed as friendly but seasonally this is expected and will therefor mute any market reaction. 


The market is also absorbing the call for expansion of the EU intervention program by Commissioner Phil Hogan at the Agriculture Council. He suggested doubling yearly fixed intervention price volume for SMP to 218,000 tonnes in reaction to strong intervention participation. 2015 saw 40,000 tonnes of SMP placed into the intervention program.  So far in 2016 we have seen 63,551 tonnes of SMP placed so into intervention. You can read his full statement here: Which includes other measures as well to allow for price support including limiting production, state subsidies and the increase in butter intervention levels as well. 


We look for Butter and NFDM to open weaker with all eyes on the GDT. 



The market continues to trade around fund positions as we look towards plating intentions at the end of the month.  Corn markets adjusted higher in reaction to an under-estimation of the fund short position.  According to our grain brokers a large short position like this before planting intentions implies a leaning towards normal to above normal planting pace and conditions this year.   Soybeans continue to see strength as the Brazilian Real has strengthened against the US$.  Wheat reacted to weather issues in India and freeze fears in the southern plains.

We look for grains to open steady to slightly lower across the board. 


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