Morning Dairy Comments, 04/08/2016

Friday, April 8, 2016

General Market News

· Federal Reserve to hold unexpected closed meeting on interest rates Monday

· U.S. dairy export obstacles highlighted in new government report

· Strong debut for China Dairy

· Oil prices lifted by Fed comments on U.S. economy

· Golden State Foods, supplier to McDonald’s, acquire Dairy Co KanPak



Class III & Cheese

Block cheese printed a new low price for 2016 during the spot call yesterday, but you wouldn’t know it by looking at futures. Both class III and cheese futures finished mixed on light volume, shrugging off the spot weakness and bucking the more typical trader mentality of shoot first, ask questions later.
But why?
Traders like patterns. Regardless of the fact that block cheese hasn’t been this low since before Christmas, the pattern has been: prices dip into the mid to low $1.40 range and quickly rebound to $1.50. In other words, if $1.40 represents a child jumping into a lake for the first time, $1.50 is like the pier they swim back to rapidly. But sooner or later, that kid is going to leave that dock behind and swim out to his friends. With spring flush by and large in full swing and fresh cheese widely available, the possibility of spot cheese prices slipping below $1.40 is still a very real scenario. It seems as though, for now, market participants have taken a wait-and-see approach having been fooled so many times before when spot prices perceptibly slump towards $1.40.
Market bulls will look at outside markets to reject dairy negativity, specifically the crude oil market for money flow into or out of broader commodity indices. This morning crude oil is up sharply (nearly $2.00 higher) on fresh hopes of a production freeze. With all the back-and-forth on this topic lately, we lose confidence in the discussion altogether and chalk up such comments as a fundamental excuse for technical trading. That being said, the technical indicators for crude oil look strong and ought to be supportive.

The Central Mostly Dry Whey powder price was down 0.13 cents from the previous week at 24.00 cents, while the Western Mostly price was steady at 24.50 cents.

For the week ending March 26, dairy cow slaughter under federal inspection was down 7.95%, at 54,400 head, compared with the same period the previous year. Year-to-date slaughter levels are 0.8% lower than 2015 levels, with 783,900 head slaughtered.

Class III and cheese to open mixed, dry whey steady.

Spot Session Results











DOWN 1 ¼







DOWN 2 ½


















Class IV, NFDM & Butter

The NFDM futures traded mixed on the back of a steady spot market with one trade at 69 cents. The market continues to show a weak tone as buyers are not urgent as they are well covered. Buyers are willing to be patient to let the offers hit their bids and that seems like what is taking place here. The dairy market news Western mostly price dropped one cent to 72.63 this week, and the central mostly dropped 2 cents to 75.5.  Low/Medium Heat posted a low price of 63.50.

Feb export sales were released earlier this week and continue to impress with a 41,350mt number up 16% from last yr. Almost half of the sales were credited to Mexico at just over 19,000mt. Sales especially to Mexico have been price motivated, and it seems any uncompetitive offers have to find a home in the domestic market. Sales to SE Asia are very strong year to date - Philippines +65%, Indonesia +41%, and Vietnam +310%.

On another note Chinese WMP imports in Feb were just shy of 36,000mt or down 26% from last year, and down 63% from 2014 levels. January saw imports of over 120,000mt up over 52% but it is clear that product shipped from NZ was held in bonded warehouses to take advantage of favorable tariffs in the New Year.

Spot butter had a relatively calm day yesterday with no trades but with 1 bid and 1 offer wide apart. The bulls took a breather yesterday as Wednesday’s 8 cent move higher to $2.08 on spot was probably over done with today’s market. There is plenty of cream out west and there are reports some butter churns are not seeking out more cream outside of their existing supplies. Stocks are building consistently and will be exacerbated by the imported fat in the market.
Some retail buyers are in the market to secure their needs for later in the year. We’ve seen some end users switch from vegoils to butter in their food applications due to a number of reasons – including consumer preference. But one other part to the equation that doesn’t get enough air time is that the vegoil market has been red hot. Palm oil prices rose to more than two-year highs this week, while soyoil reached 10-month highs. So we know that the world has come to love fat again, but it’s not like there are a lot of cheaper alternatives.

NFDM to open mixed, Butter higher, Class IV steady/mixed.


The grain markets closed out yesterday’s trading session with mixed pricing as the corn market diverged from the bearish soybeans and wheat.  Corn futures rose modestly to settle 2.75 to 3.50 cents higher on better than expected weekly export sales as U.S. prices remain competitive in the global marketplace.  China is looking to cut their total corn acreage by 3.3 mln hectares by 2020 representing an 8.6% decline, or 20 mmt of corn, in an effort to shift towards greater soybean production.  Funds were credited with buying 14,000 contracts throughout the day. 

Soybean futures slid between 2.50 and 3.50 cents lower as ideal weather for the soybean harvest in South America coupled with the global price disadvantage U.S. sourced beans hold on the global stage had funds trimming their long positions.  The Attaché of Brazil announced an estimate for the 2016 soybean crop to increase by 3 mmt over last year as planted acres are projected to increase. 

The wheat futures registered the largest price change of the day as contracts slumped between 5.25 and 6.00 cents lower on the poor weekly export sales figures.  The weekly export sales registered a net cancellation as U.S. values still hold a premium to those of French and Russian wheat.  Dryness is expanding in the Southern Plains with dust storms and fire watches issued for Oklahoma and Kansas.  Funds were estimated to have sold 4,000 contracts on the day.



We expect grains to open mixed/firm.

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