Morning Dairy Report, 03/28/2016

Monday, March 28, 2016

General Market News

· American’s anticipated to increase  red meat consumption for first time since 2006

· Deal reached to boost California’s minimum wage to $15

· China’s industrial company profits return to growth in Jan.-Feb.

· Fed’s taint raw milk investigation, soil farmer’s reputation

· HSBC ‘negative’ on Chinese dairy consumption



Class III, Cheese & Dry Whey

The holiday shortened week closed with a quiet spot cheese session as participants left both the Blocks and Barrels unchanged with no activity.  Despite the lack of spot activity the Class III futures tallied a respectable 755 total trades with activity stretching through the December 2017 contract with settlement prices ranging from between 5 cents lower and 9 higher with the strongest gains posted in the April through June 2016 months. 

The spring flush is upon us as milk production rates are increasing across most of the country, and with spring break vacations cutting into fluid demand at this time of year more milk is making its way into cheese vats.  Cheese inventories are at historically large levels, and with exports moving at a sluggish pace it has been the demand of the domestic consumer that has helped to shake off the weakness of the international prices, keeping U.S. cheese trading at a premium. Yet Midwest and Northeastern cheese plants are now running at or near full capacity to keep up with the influx of milk with some regions beginning to note concerns relating to storage availability. With buy side interests for the most part willing to bide their time and address immediate needs only in hope of further price weakness the opportunity for a stable and extended price recovery look slim in the coming weeks.  Cheese futures ended Thursday’s trading session with contracts settling between 0.2 cents lower and 1.5 higher, with the March 2016 contract posting the lone decline for the day. 

Dry whey futures registered a total of 20 contracts traded, with all activity contained within the April through June 2016 contracts.  The March through May contracts settled between 0.3250 and 0.5000 cents lower while all other contracts remained unchanged

The dairy cow slaughter under Federal inspection for the week ending March 12th was reported as 60,000 head, up 900 (1.5%) from the week prior.  The year to date slaughter total is estimated at 671,600, up 0.1% from last year during the same period. 

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

Spot Session Results
































UP ¼




Class IV, NFDM & Butter

The Class IV market held steady Thursday as the strength of the butter market offset the mostly weaker performance of the NFDM.  The spot butter price ticked $0.0025 higher to $1.9225, inching higher from its lowest price point of the year, as futures rose in response, settling between 0.325 and 1.675 cents higher on the day. As holiday demand is now behind us butter manufacturers are working to build inventories. Manufacturers are still running at full capacity as ample cream supplies are reported across the country. 

NFDM futures settled mixed but mostly lower as the nearby March through May contracts suffered the heaviest declines.  Futures contracts settled between 0.875 cents lower and 0.250 higher on nearly 100 total trades.  Looking to the options a total of 89 calls were traded compared to just 38 puts.  The open interest for the call options increased by a total of 80 contracts while the put options saw a decline in open interest of 19 contracts.  The disparity in the trading activity within the options market alludes to a much greater concern relating to a potential rebound in NFDM prices while capitalizing on the recent decay of the NFDM contracts values.

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


The soybean futures provided spillover strength to the entire grain complex Thursday allowing the corn and wheat markets to shake off early declines as all contracts settled no worse than unchanged for the day.  Soybeans were driven higher by fund buying of an estimated 7,000 contracts as the market has shifted to technically strong.  Weekly export sales were reported at the low end of market expectations while the price rally inspired active selling from farmers.
The Argentina government released their production estimates of 60.9 tmt, 2.4 tmt above the latest USDA estimate feeding into the notion of a large global supply.  Last week’s rally in soybean values has positioned soybeans as the financially favorable crop compared to corn for the coming planting season as soybeans now provide a better return over cash costs to farmers.  Reporting for Thursday’s Acreage Report had been completed prior to last week’s price action and could lead to an overestimation of corn acres that will ultimately be planted.

The corn market shook off early trading session losses brought on by the poor showing in the weekly export sales report, with the figures reported falling below trade expectations, yet were still far ahead of sales during the same week last year.  Corn offerings for export for Argentina and the U.S. now find themselves on par based on cost which may lead to an increase in U.S. exports in the coming weeks.  Funds were estimated to have covered over 6,000 short positions ahead of Tuesday’s crop report (estimates for the report are contained below.
The wheat market was able to thwart the early session selling pressures to end Thursday’s trade unchanged on the day.  Weather models have remained unchanged for the Southern Plains with rains coming to the dry regions as no severe damage has been reported due to the recent frost.  The weekly export sales figure was on the high end of trade expectations, though the overall pace of wheat exports remains well behind the USDA’s total export estimate so much so that expectations for a 25 mln bushel reduction should be seen in April’s Supply and Demand Report.

We look for Corn and Soybeans to open 1-2 lower and Wheat to open 1-3 cents 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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