Morning Dairy Comments, 05/09/2016

Monday, May 9, 2016

General Market News

· China trade may sway Fed’s rate decision

· EU referendum: Cameron warns UK exit could put peace at risk

· China stocks plunge again as hopes for economic recovery fade

· Wind shift set to move fire from Oil-Sands site in Canada

· USDA adds 800,000 acres to CRP



Class III & Cheese

Cheese continued to be offered in Chicago on Friday. Blocks settled unchanged at $1.305 with one trade (the first day all week the price didn’t finish lower), and barrels fell 1.5 cents to $1.30 even on no trades. Class III and cheese futures continued to show support despite recent spot price action. Ultimately futures will price to spot, but in the interim the futures market is by definition considering a host of factors other than the present price of cheese. The key question is whether or not the modicum of strength seen last week on futures is a sustainable move.
Last week the market was faced with some historical data points that continued to tell the fundamentally bearish story. Cheese exports in March were down 26% from last year, or down nearly 9,000mt (down 19.8 mil pounds) to 25,488mt. Imports continue at record paces. Total cheese production in March was up 1.8% to 1.029 billion pounds. But we have to juxtapose the historical record (remember these are figures are from March) with the current buoyancy of the futures market. In other words, the futures market is trading other information and unknowns. In addition to weather and currency considerations we discussed last week, we thought it important to revisit some other indicators of economic health.
If you’re in the cheese business, you’ve likely seen better-than-expected domestic sales at one point or another during the past 18 months. But it’s worth reminding ourselves of the current dynamics at play and that the broader health of the domestic economy is much stronger today relative to 2009-10. Two domestic demand barometers to consider: vehicle miles driven, and the Restaurant Performance Index (See charts below).



People are traveling more starting in 2013 and the windfall energy savings over the past 18 months or so incentivized even more traveling. These factors have and, in our opinion, will continue to absorb higher cheese supplies through the summer months.
Both class III and cheese futures have been up over the past several days. We look for that trend to continue. For this morning it looks like we’re going to open a little lower and we could see the futures market give up some of the gains from last week early this morning. But we expect that the dips will be bought.
We look for Class III and Cheese to open steady to lower and Dry Whey to open mixed.

Spot Session Results


















DOWN 1 ½ 







UP ¼   











Class IV, NFDM & Butter

Spot NFDM prices ticked up a ¼ cent on Friday to 77 ¾ cents on 2 trades. The NFDM futures were mixed as buying emerged later in the session. The strength in the spot market can be attributed to end users appetite to build positions. The AMS prices printed 72.56 cents last week on strong volumes of 31.4 mil pounds or 14,200mt. CWAP showed a 71.44 number with a volume of 20.4 mil pounds. The weaker USD is adding one more bullish argument as the US NFDM is the cheapest in the world now. About 16,000mt of SMP was added into the EU’s intervention last week at prices of €1,698/mt or about 88 cents/pound. We may be back to the tender program before you know it.

March’s dairy products report showed NFDM production down 5.1%, SMP up 2.8%. Although unsweetend consdensed skim milk proudction continues at a strong clip up 14.2%. Class II end users report condensed skim milk is available at discounts.

Spot butter prices finished the week unchanged at $2.05 with no trades. Futures were firm as buyers continue to chip away at some coverage. Butter production in March was up 8.6% at 182 mil pounds. California production continues it’s flat to lower trend at -2.7%. With a solid shift of production from american style cheeses to mozzaralla in March there was plenty of cream that found its home in the churns. Overall demand is firm from food service and retail end users.

We look for NFDM to open firm, Class IV and Butter mixed.



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