Morning Dairy Comments, 03/31/2016

Thursday, March 31, 2016

General Market News

· McDonald’s announces plans for growth in Asia looking to add 1,500 restaurants

· FAS opens up new market opportunities for U.S. dairy cattle in Pakistan

· Muller UK slashes May milk price due to ‘extreme market volatility’

· China’s rating outlook lowered to negative by S&P



Class III, Cheese & Dry Whey

Class III and cheese futures traded mostly steady, slightly higher Wednesday on relative spot stability and some short-term technical strength. In many cases contracts are simply re-testing Monday’s high price prints. Selling is apparent, but not aggressive. The appetite to initiate new 2016 short positions – be it producer selling or otherwise - has not been a key component to this week’s trade. On the contrary it seems that, at least for nearby contracts, the buy side is slightly busier with a mix of short-covering and what appears to be new speculative buying in the latter part of Q2.  Ultimately, the willingness of spot block cheese sellers is somewhat of a departure from the past several weeks and we take note of that.

Excluding the first week of March when 31 loads of block cheese traded and prices peaked at $1.52 – a 2016 high, a sum total of 1 block load traded back on March 18. With just three days under our belt this week, 5 loads of block cheese have traded and the price has dropped 3 cents. While a quick glance makes the spot market look relatively stable, the pattern here lately is that cheese is making its way to the exchange and dropping price. The sellers aren’t waiting for buyers to bid it up.

Now we’re not seeing new spot lows made and the futures market seems undisturbed by recent spot selling, so we’re not trying to make a mountain out of molehill here. In fact, an argument can be made that the futures market is quite resilient right now amid spot selling and that could be a signal for firming – not falling – price action in April. But given the milk flows and available cheese in the country today, we’d expect that spot prices see more sell side activity today and as we roll into Q2.

Weekly Block Cheese Chart – Still trending lower 

USDA-AMS’s Dairy Programs announced the March Class III milk price at $13.74/cwt., down 6 cents from last month and $1.82/cwt. lower than a year ago. Class III milk prices decreased as a result of a slightly lower cheese price average that offset a slightly higher dry whey price average. March’s Class III milk price ranks as the 141st highest in history.

The cheddar cheese price average was released at $1.5162/lb., 0.08 cents below last month and 5.88 cents below last year. March’s announced cheese price average ranks 110th since the start of the price series in 2000. The dry whey price average was up 0.08 cents to 24.77 cents per pound, but 23.47 cents below last year. The dry whey price average for March came in ranked 132nd since the price series started.

Dairy Programs will announce the April Class III and IV milk prices on May 4, 2016.

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

Spot Session Results


















UP 1 







DN 1 ¼   







UP ½  




Class IV, NFDM & Butter

NFDM and Class IV pushed lower yesterday. NFDM was the instigator falling mostly between 0.500 and 1.000 cent lower through January 2017 on good volume of nearly 400 contracts. If you strip out the open interest increase from options settlements in March, open interest was up only 15 contracts. Liquidation was seen primarily in Q2 2016, but overall the market was lower on a good-two sided trade as there seems to be some latent, but new buy side interest in the second half. We expect continued pressure on the NFDM market here to close out the month.

March NFDM was announced at 75.22 cents per pound yesterday, 1.67 cents below last month and 26.95 cents lower than last year. The Class IV milk price was 75 cents lower than the previous month at $12.74/cwt. and $1.06 less than a year ago. This is the lowest class IV price since October 2009.

Light volume and mixed prices were featured in the butter market Wednesday. Spot pricing seems comfortable for now in the mid-$1.90’s as evidenced by a good two-sided trade there again yesterday. Overall, the traded is not seeing a bid push by either side right now and is settled into a more sideways trade for the moment. Between milk production and cream availability in the country we should continue to see butter produced and put in storage. In fact, the USDA Weekly Cold Storage data this week ramped up to a 7 ½ year high over just over 24 million lbs. (not seen since September 2008). Weekly warehouses make up around 15% of the warehouses reporting into the monthly Cold Storage report.


The March butter price average of $1.9905/lb. was 14.45 cents below last month, but 29.60 cents higher than last year

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


The grain complex as a whole pushed lower yesterday ahead of today’s release of the USDA’s Grain Stocks and Prospective Plantings Reports.  The corn futures fell between 5.50 and 6.00 cents lower as producers and funds were active sellers at these elevated price levels of the month.  U.S. corn values have climbed above those of Argentina for offer into East Asia by roughly ten cents diminishing the prospects of export demand. 
The soybean contracts settled between 5.50 and 7.00 cents lower as again producers and funds were seen as active sellers.  Soybeans out of Brazil are being offered at roughly 32 cents below U.S. soybeans while Argentina soybeans still hold a discount to U.S. product cutting into potential export sales.   The wheat futures registered the greatest price declines of the day as contracts settled between 11 and 12.75 cents lower.  Improved weather forecasts in the Southern Plains lead to fund selling.


We look for a mixed opening to the grains this morning ahead of the USDA reports at 11am Central.

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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