Morning Dairy Comments, 04/15/2016

Friday, April 15, 2016

General Market News

· China’s GDP growth slows to 6.7%

· Fonterra dairy co-op increases profit

· U.S. moving warplanes to Philippines amid rising tension with China

· USDA expands safety net for family operated dairy farms

· Tax day 2016: Why is April 18 – not April 15 – the tax deadline this year?



Class III & Cheese

Class III prices had little choice but to pullback yesterday following the spot market which saw blocks trade down ½ a cent to $1.4225. While that activity could simply be an effort to correct the narrow block vs. barrel spread futures are carrying a significant premium and dipped albeit lightly during yesterday’s session. From April through December prices were 6 to 13 lower on the day. Volume was a bit firmer yesterday, nearly 1,000 contracts, as well with the pullback as it appears hedgers are still looking to fill needs for the 2nd half of the year. This was also evident in the cheese futures which saw over 700 trades take place and a number of 2nd half 2016 contracts were over 100 trades on the day.

While a good amount of protection has been put in place by end users for the 2nd half of the year the recent bottoming action on the charts, July to December cheese pack average below, appears to have made them a bit more aggressive from a price standpoint. The crossing of the 10 and 20 day MA’s hasn’t occurred as you can see on the charts going all the way back to early December. We still have quite a bit of resistance above the market so this isn’t to say we’ve completely flipped the trend but from a technical standpoint buying is certainly justified.

July to December 2016 cheese futures pack average:


Whey futures were a bit more active on Thursday as prices moved mostly higher with the exception of April which was down just 0.075 cents. The strength in the deferred powder markets looks to be end users taking advantage of a very low long term price point at the moment and thus far the turnaround on the charts has lagged that of class III and butter but now the powder markets are holding up despite a little weakness in the other markets.
Weekly DMN prices were mostly unchanged with the Central mostly price unchanged at 24 cents while the western mostly price was down 0.25 cents to 24.25. We’d look for the nearby months to continue to work their way a bit lower in the short term but think the long term buy side interest will be there for a while this spread should widen out for the time being but a correction will need to occur eventually.

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

Spot Session Results




































Class IV, NFDM & Butter

The butter market was relatively quiet yesterday as the spot market followed through on Wednesday’s large decline falling by another penny to $2.06. It looks as though the market is searching for a balance point at the moment and somewhere in the $1.95 to $2.05 window seems logical to us. From a fear perspective this could be a $2.40 market but from a fundamental perspective it seems as though it should be a $1.80 market. Futures finished the day higher by 0.225 cents in April but steady to 1.875 cents lower from there forward. Bi-weekly international prices continue to soften as well you can see below imports should continue to attempt to keep some type of lid on butter price increases.

The NFDM market is very resilient on the forward curve this week. With weak CWAP and weak NDPSR pricing released the past two days it’s no surprise to see nearby month’s trade slightly weaker, April and May settled down 0.300 and 0.575 cents respectively. But the outward months seemingly have some hedge buyers itching to get coverage with settlements from 0.100 to 1.950 higher. Buying on the forward curve has continued despite some weakness in both butter and class III pricing the past couple days. DMN prices were also softer with the central mostly midpoint at 74.25 down 1.25 cents from the prior week while the western mostly midpoint was unchanged at 72.625. Something will have to give here it seems and at the moment despite weakness on some of the other dairy commodities our feeling is that spot prices will likely increase to close the gap. 

We look for a steady to mixed opening for Butter, NDFM and Class IV.


Farmer selling finally seemed to hit the market yesterday and as I was speaking with one of our grain consultants in the upper Midwest he noted that yesterday was nearly a record for him in regards to tickets written up. It seems despite some planting getting underway farmers have found their way to the board to move some of the record crop holdings they have. As you can see in the chart below we are very much into overbought territory and a correction is likely warranted at the moment there should still be 10 cents of downside for beans prior to hitting the first support level. Interestingly corn was able to scratch out a higher close finishing up 0.50 cents at $3.74 while beans fell 7.75 cents to $9.48 perhaps as some unwinding of the soybean vs. corn ratio spread occurs. The pullback also came despite strong export sales for both corn and soybeans. Corn exports were 49.1 mln bushels vs. estimates for 37.4 to 51.2 bean exports were 17.2 mln bushels vs. estimates for 4.6 to 18.3. For the time being it looks as though we will get a little bit of a reprieve from the consistent fund buying that has come into the market over the past few weeks the question is at what point will buyers step back in from a technical perspective?


Look for a mixed opening for grains in line with the overnight trade.


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