Morning Dairy Comments, 04/19/2016

Tuesday, April 19, 2016

General Market News


Class III & Cheese

It was a tepid start to the week from a volume standpoint for both Class III and cheese. Just 502 class III futures traded hands and 76 cheese futures in what has been the slowest day this month. Factor in the well-trod spot cheese range, which has oscillated back and forth between $1.40-$1.50, and it’s no wonder the trade is tired. It’s also no shocker that support materialized in yesterday’s spot call as defense of the $1.40 line continues, which has largely prompted the corrective upside move we’ve seen over the past few weeks. Nearby contracts have and continue to trade a material premium to cash while deferred months flirt with last week’s highs.

Yesterday’s light volume showing was probably more a function of the trade taking a cautious approach ahead of a plethora of potential market moving info starting with this morning’s GDT auction. Tomorrow the USDA gives us the March milk production numbers, which also tends to bring in a little pre-report market lift. We’re forecasting a 0.8% uptick on higher milk per cow and higher cow numbers. With more than enough premium in the futures forward curve given the current fundamental picture, futures have a potential for price weakness over the next several days if the news we’re waiting for is not bullish.

Speaking of bullish - despite a nice increase in imports, domestic cheese demand remains strong. American cheese demand in February was 5.4% above a year ago and up 2.5% versus previous-month levels, according to USDA’s latest Livestock, Dairy, and Poultry Outlook tables released last Friday. Demand for the “other” cheese category increased 8.01% from 2015 levels and was 6.7% higher than month-earlier levels. Total cheese use gained 6.99% from a year ago and was 5.1% above the previous month. Year to date, American cheese use is 2.4% higher, and other than American cheese use is up 7.3%, which puts total cheese use 5.4% higher.


Overall, however, we have a hard time pointing to a fundamental change in the overall global dairy dynamic. Milk production remains strong in the US and slaughter rates, which are running below 9.7% year ago levels as poorer on farm margins have yet to trigger more significant culling. Producers want to keep the barn full.  The EU producers are no different apparently.

According to commentary from our European colleagues, All of the main EU producers posted year on year increases for February milk collections on a 29-day basis and all but France posted year on year increases even when the production levels are adjusted back to a 28-day basis.”

Cooperatives Working Together (CWT) accepted 8 requests for export assistance to sell 668,001 pounds (303 metric tons) of Cheddar, Monterey Jack cheese and 88,185 pounds (40 metric tons) of whole milk powder to customers in Asia, the Middle East and Central America.

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

Spot Session Results


















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Class IV, NFDM & Butter

NFDM saw a decent two-sided trade yesterday, spending most of the session probing to the upside, particularly for the deferred months as they were able to effectively muscle through long standing technical areas of resistance as indicated by the cluster of moving averages which have blunted rally attempts on numerous occasions. Some sell side pressure did hit the market after the close of pit trade, which drilled down a bit on the April-August timeframe and took futures into the red, but all said and done the overall market tone is firm with the spot price recovering back to $0.7350. The trade is expecting a firm GDT showing this morning as indicated by WMP and SMP futures being on the upswing since the last GDT auction which has lent some support to the NFDM market as well.

The butter market has settled into a sense of complacency for the time being as spot movement has stalled a bit here north of the $2.00 mark. Futures have seen decent, two-sided trade at levels of technical interest between $2.10-$2.15 through the end of the year. Hedgers remain proactive yet aren’t so willing to push it as they were just a few weeks ago as they have a certain percentage of coverage at these levels and will likely look to scale into additional coverage just probably not at these levels.     

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


Grains charged out of the gate to open the week, led by strength in the wheat market as short covering and whispers of 5 mmt of the stuff “disappearing” from warehouses in India (not confirmed).  It was enough to push the futures sharply higher with residual support offered to the corn trade, which posted its 5th consecutive higher close and marked the 11th of 12 trading sessions in April settling higher, as indicated on the chart below. July corn managed to muscle up through its 150 day moving average (aqua line) and now looks poised to test the 200 day moving average just north of $3.90, a critical level of resistance which should yield to a healthy dose of farmer selling and profit taking. Will farmers be too busy with field work and the 2016 growing campaign to take advantage of the bullish price action?
Monday afternoon’s corn planting progress featured expected strong progress with Missouri leading the way at 58% complete and the U.S. as a whole at 13%, compared to the five-year average of 8%.


We’ll have to keep our finger on the pulse of the commodity sector at large as managed money continues to lift the broader index off multi-year lows. Yesterday’s crude oil’s performance is indicative of such sentiment as it gapped lower on the open Sunday night after oil producing nations failed to pen a deal freezing production levels. By mid-morning, crude futures were well off their intraday lows as bargain hunters stepped in and supported the market. This morning crude is 50 cents higher possibly signaling that, like many commodities across the spectrum, the bearish news has been factored in and is old news. A rising tide lifts all boats as they say.   

Corn is called to open 2-3 higher, Soybeans 5-7 higher and Wheat mixed in line with the overnight trade.

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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