Morning Dairy Comments, 04/13/2016

Wednesday, April 13, 2016

General Market News

· USDA announces improvements to the MPP program:

· Oil rallies over 4% hitting yearly high; Saudi minister dampens hope for action this weekend 

· USD up sharply this morning

· JP Morgan posts better than expected earnings

· Chinese exports up 11.5% in March, best gain in 13 months

· Small business confidence hits a two year low

· Chinese GDP data released tomorrow likely to show growth at a 7 year low

· Half of large banks have flawed bankruptcy plans according to regulators



Class III & Cheese

Second half class III and cheese led the charge higher yesterday with futures as much as 28 cents higher in August before retreating slightly. Currently, the 2nd half class III pack is trading at 15.04, off its lows of 14.31 set back on 3-15.  Milk and cheese prices are now sitting at levels not seen since mid to late February.  This recent trend may have some scratching their heads as we move into flush but it certainly feels as though this is only temporary, likely buoyed by a weaker dollar and stronger crude prices (2016 highs made yesterday) and la Nina concerns.

With this recent move, class III looks a bit overbought and one should not be surprised if some of these gains are given back in the next few sessions. Fundamentally little has changed with stocks building and plants processing near or at capacity as new milk becomes available. Next week’s production and storage reports should give us a clearer fundamental picture. As well as the GDT offering some international price indicator.

The latest RPI report stood at 102.1 in February, up 1.5 percent from Januarys 100.6.  While this National Restaurant Association Report does reflect a state of expansion, the NRA notes “same store sales and customer traffic indicators registered strong gains in February, as most restaurant operators were open for an extra day of business during the month.”

The concern is: if restaurants benefitted from low oil prices, what happens when the price of gasoline rises .50 per gallon. The price of oil would have to go higher for this to happen, but if oil trades back to around $50 a barrel the increase in the prices at the pump with start to impact consumer psyche.


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

Spot Session Results











UP ¾ 







UP 2







UP 3/4   







DOWN 10 




Class IV, NFDM & Butter

Butter values tumbled lower for the first time this month with spot butter moving down 10 cents.  Futures followed suit moving limit lower in several nearby months.  As with the move higher in cheese, the recent run higher has many perplexed. As we push past spring holiday demand and build along seasonal patterns the recent run in butter has many wondering if they are “missing something.”  That said, some early buying for the upcoming summer months may be to blame but cream, from what we are hearing, is available.  While demand is good overall, some may be attempting to get a head start on any potential needs for this fall and refilling inventories after the Easter drawdown. Something similar occurred last year but that bump above $2.00 quickly corrected back into the 1.80’s and April 13th feels an awful long way from the fall demand.

NFDM saw gains on the day with August pushing as much as 1.375 cents higher yesterday.  While the tone remains weak in NFDM, Q3 NFDM has been rather range bound with futures trading anywhere from the .8322 to .9180 since the end of January. We are very near an upside breakout on the charts but fundamentals, whether that be the spot market or perhaps GDT next week will have to provide support to confirm the move. Weekly CWAP prices were down by 2.30 cents to 74.04 cents. One would have expected the sharp drop to come on large volume but that wasn’t the case as volume was just over 8 million pounds. This will likely have a sharply negative affect on NFDM futures in nearby months today.

We look for NFDM and butter to open sharply lower.


USDA increased corn stocks by 25 million bushels while lowering soybean estimates by 15 million bushels.  Global ending stock estimates also increased to 208.91mmt and 79.02mmt respectively.  Overall, yesterday’s WASDE report was neutral for beans and neutral to slightly bearish on the corn side. Futures were higher early in the session by nearly double digits but eased back after the fundamental reminder that we have a lot of grain out there trading back to unchanged. Interestingly though a late day rally took us right back near intra-day highs so that the charts remain bullish in formation. One has to wonder if the funds are attempting to keep the charts bullish given all of their recent buying interest. Short term weather looks to be cooperative to rapid planting so it will be interesting to see if the market can continue to seemingly swim upstream.


Soybeans continue to lead the way higher overnight. We expect beans to open 8 to 11 higher with corn and wheat 3 to 5 higher.


UK milk collections for  February

Eurostat data released yesterday showed UK milk collections for February totalled 1.19 million tonnes, an increase of 4.5% on last year on a 29 day basis and an increase of 0.92% adjusting for the extra day in February, slightly above our estimate of 1.18 million tonnes for February collections. Cumulative collections for February now stand at 2.45 million tonnes, up 3.6% on the same period last year. It was been reported that production for March is expected to fall off compared with last season however with our estimates forecasting collections to drop by about 1% year on year as the poor grass growing/grazing conditions take their toll on cow productivity.

Voluntary EU Milk Supply Management

The EU Commission yesterday implemented the change made to EU regulations allowing voluntary agreements between producer organisations, their associations and recognised inter-branch organisations to plan production on a temporary basis for a period of up to six months. This means farmers can now be paid to reduce milk production on a voluntary basis for no more than six months. We do not see any major short term impact from this measure as although some countries may welcome production controls, if they implemented them in isolation, others would see any such isolated measures as a possible opportunity to expand production.

EEX Futures

A total of 26 lots (130 tonnes) traded on EEX yesterday with all lots trading on butter. Apr16 traded one lot at €2,440, down €10 from the last traded price of €2,450 a day earlier. May16 traded five lots at €2,460, down €30 from the last trade on Friday. Sept16 traded a further five lots at €2,550, down €45 from last Thursday’s last traded price. Oct16 traded the remaining 15 lots at €2,595, down €25 from Thursday’s last traded price of €2,620.

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