Morning Dairy Comments, 04/12/2016

Tuesday, April 12, 2016

General Market News

· ***April WASDE report today at 11 am

· USD continues its recent slide as crude oil prices rally back near recent highs

· Alcoa Inc. reports first quarter earnings down 92%

· Oil prices continue to rise on hopes of a production freeze agreement this weekend

· Dairy farmer and beef organizations urge passage of TPP; american-beef-dairy-farmers-urge-tpp-passage/

· Iran and Germany plan joint production of dairy products: IND_304793.html



Class III & Cheese

Class III futures closed higher yesterday amid modest volume that saw trades into December of 2017. The April 16/May 16 Class III spread continues to see action as traders roll their positions’ forward. That spread was traded 107 times, representing 23% of the total volume for those months, and 16% of all contracts. 7 contracts traded in the 2nd half 2017 pack, which settled a penny higher at $15.38. On average the Class III futures contracts that traded on Monday settled 9 cents higher, despite continued weakness in the Spot Cheese market.

Spot Blocks and Barrels have not closed higher since April 1st. That trend continued yesterday. Blocks and Barrels were both down ¼ cent to $1.4175/lb, and $1.4150/lb respectively. Outside markets seem to be holding both Class III and Cheese futures steady to higher the past several days despite the spot declines. Buy side interest has come in for both NFDM and Butter as of late, and the feeling is that the same interest may find its way to cheese. The dollar is approaching the 6 month low, and domestic consumption looks to have a seasonal increase with the coming grilling season. All potential reasons for why futures have remained steady in the face of weaker spot.
Cheese futures followed in lockstep with Class III and posting gains yesterday. 2nd half 2017 contracts traded 7 times, just under $1.70/lb. Whey also settled higher on 4 trades in the lead month. Spot cheese is testing the lower level of its trading range, where it has consistently found support. The spot equivalent Class III contract stands at $12.98/cwt. No futures contract is within 60 cents of that number, which suggests a correction is in order.   

CWT reported yesterday that they are assisting in the export of 1.614 million lbs. of cheese, and 132,277 million lbs. of WMP. So far this year CWT has assisting in exporting 13.975 million lbs. of cheese, 7.716 million lbs. of butter, and 14.808 million lbs. of WMP compared to 25.763 million lbs., 24.387 million lbs, 7.232 million lbs respectively, through the same time last year.

We look for class III and cheese to open mixed, dry whey steady.

Spot Session Results











Down 1/4







Down 1/4







Up 3/4   







UP 5 




Class IV, NFDM & Butter

Butter was again higher in both spot and futures yesterday. As spot neared, most futures contracts were locked limit up in anticipation of another frenzied session. Spot butter did close 5 cents higher on 4 trades to $2.17/lb but the emergence of sellers during the spot session sparked a similar trend in futures, as butter came off its highs of the day. Settlements were on average 2 ¾ cents higher as volume was at a near 2016 high over 500 trades The September 2016 contract lead the pack with 125 contracts traded. The sustained rally in spot has market participants worried for another run this fall. End-users are all too familiar with $3 butter and are looking to hedge that risk. That could be the reason why volume on Monday was so strong, especially in the September contract where butter has been seasonally high the past 2 years. Gains spread into Class IV futures as well Monday, which saw a slight uptick in trade activity. 

Spot NFDM had not posted a gain since April 1st, but instead experienced continuous weakness until it bottomed out at its lowest price ($0.69/lb) since August 2015. Monday, spot NFDM came off its low and settled ¾ cent higher, sparking a marginal rally in futures.

As previously mentioned, the dollar is approaching a 6 month low. A weaker dollar increases the gap between EU intervention prices and domestic prices. For example, in Nov 2015 the EU intervention price for NFDM equivalent after conversions for currency and volume was roughly $0.81/lb. With recent weakness in the dollar, that price has jump to almost $0.88/lb, making domestic product more competitive internationally offering some price support.

We look for NFDM and butter to open mixed.



Soybeans finished 8-11 cents higher yesterday, making fresh 2016 highs in the process. Export inspecting for soybeans came in above trade estimates of 100MT to 300MT at 386MT, but are still 2% behind the yearly USDA expectations. Mexico was the number one export destination for beans at 114 MT. Funds started where they left off last week and were buyers of beans Monday. Increasing their long position by an estimated 11,000 contracts.

Corn settled lower yesterday, but came off its lows before the close. Export inspections were above trade estimates of 775MT-975MT at 1121.9MT for the week ending 4/07. Like beans, the leading destination was Mexico. Planting progress was estimated at 4% nationally, ahead of 1% LY. The Midwest is forecasted for warmer and drier weather the next 2 weeks which should allow farmers to get the vast majority of field work completed. This good early season weather continued to drive the corn soybean spread to wider levels as the window appears wide open for corn planting to match the March 31st estimates perhaps even in spite of the sharp price correction that has been seen in the price ratio. Funds increased their short position on corn, selling 11,000 contracts Monday. The April WASDE report gets released later this morning. Estimates are included below but this typically not a big price movement generator.

Soybeans continued to charge higher overnight, look for a 5 to 8 higher open there with corn and wheat 2 to 4 higher.



Weekly French milk collection volumes easing on previous years

Our latest estimates based on data released by FranceAgriMer are showing weekly French milk collections down on last season and the 2013/14 season. The data shows that eight out of the last 10 weeks have posted lower milk collections than their corresponding weeks last year. The biggest divergence on milk volumes have come over the last five weeks, with key NW regions Britany, Pays de la Loire and Normandy seeing the biggest pull back. Milk collections for the W/E March 27th totalled 489.48kt, down 2.71% on the same week last season. W/E March 20th was down 1.98% on the same week of previous season at 494.23kt versus 504.23kt a year earlier. Collections for W/E March 13th totalled 491.83, a reduction of 2.14% on the previous year. With the exception of two weeks, W/E January 24th and W/E February 7th (up 1.32% and up 0.45% on last year respectively), all other weeks were down by 0.04%-1.60% on last year.

Grass growing/grazing conditions for Western Europe remain unfavourable

Weather conditions during March and the start of April have not been favourable for milk production in NW Europe. In particular over the past two weeks,  Ireland, the UK and Northern France and part of the Netherlands and Denmark have experienced 150-300% of normal rainfall. The excess rainfall coupled with maximum daytime temperatures of at best around normal and two to four degrees Celsius below normal in some places is having a limiting impact  grass growth and making for difficult grazing conditions for farmers to utilise the grass covers that do exist and  having a having a knock on impact on milk production.

EEX Futures

A total of 21 lots (105 tonnes) traded on EEX yesterday with all lots trading on butter. Apr16 traded two lots at €2,450, down €25 from the last traded price of €2,475 from last Tuesday. Aug16 traded the remaining 19 of the lots at €2,570, up €10 from Friday’s last traded price of €2,560.

NZX Futures

210 lots/tonnes traded on NZX overnight with all lots trading on May16 WMP. The first 100 lots traded at $1,995, down $50 from Friday’s last traded price of $2,045. a further 100 lots traded back up $10 at $2,005 while the remaining 10 lots traded $40 firmer at $2,045.

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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