Morning Dairy Comments, 05/12/2016

Thursday, May 12, 2016

General Market News

· Soybean rally catching news headlines, up 25% on the year…might be time to watch out below once now that its hit the headlines

· USD down near 500 points yesterday a minor loss in the face of the recent rally

· Linn Energy LLC files for chapter 11

· Macy’s stock falls near 15% as same store sales down 6.1%

· Dow down nearly 200 points yesterday

· Bank of England holds key rate at 0.5%

· Eurozone industrial production up just 0.2% from 0.8% in Feb and well below expectations 



Class III & Cheese

Class III values soared on Wednesday, trading as much as 40 cents higher, on gains in both blocks and barrels.  The tone was firm from early on in the trading session, the July contract moved significantly higher, settling up 37, erasing most of the losses seen over the last week.  Although yesterday’s rally was strong, it may be more of a “bounce” than a sign of a strong turnaround.  In other words, one shouldn’t be surprised if we make another push lower.  With all this talk of rounding out a bottom, we must keep in mind that we have plenty of milk about.  Even though we are likely near or past peak production, in many areas we are by no means scrambling for milk.  Though we may be near a bottom a quick recovery seems unlikely.  While we don’t expect to see an $11 handle on futures, it still seems likely futures will set new lows over the next few weeks as we push through May.

So what are the bulls and bears arguing?  Bulls point to solid demand, some bargain hunting, and total cheese use increases (+6.99% YOY).  Bears continue to argue that exports are down (26% YOY) and production and stocks are up, production being up 1.77% YOY and stocks up 11.43 % YOY.  The bearish argument seems to be more convincing at the moment. We should expect production to contract along seasonal lines leaving much at the mercy of demand and weather in the upcoming months.  Should we have some extended extreme heat events through the summer in both the U.S. and more importantly Europe this could be a different ball game come late summer. 

Volume was very strong yesterday on class III with over 2,100 trades and yesterday’s price action appears to have been driven by short covering in the class III market with OI down over 200 contracts on the day. This lends further credence to the argument that yesterday was a ‘bounce’ rather than a change of trend. NDPSR, for the week ending May 7th, reflected an average price for blocks at $1.44, a decrease of 1.7 cents.  Barrels averaged $1.46, a decrease of 1.2 cents from the previous week.  Whey prices were up 0.26 cents to 25.02 this week, the first time above the 25 cent mark in over a month.

We look for class III, cheese and dry whey to all open higher this morning.

Spot Session Results











UP 2 ¾ 







UP 1 







UP 1 ½      







UP ½    




Class IV, NFDM & Butter

Spot NFDM saw another day of double digit volume with 10 loads trading.  Thus far, in the month of May, we have seen 49 loads trade. This is 16 more than at this point last month.  Currently the Q3 pack is trading at $0.8791.  NDPSR, for the week ending May 7th, reflected an average price of 74.4 cents per pound, an increase of 1.7 cents from the previous week. While the spot and futures market have been firm of late we are now nearing the EU intervention pricing level on spot and we have to wonder how much upside is left in the marketplace as once pricing pushes above intervention levels you’d have to expect more product will come available which should limit further upside.

Butter futures saw some strength on the move in spot yesterday with futures slightly higher through the 2nd half.   Butter production, from what we are hearing, is robust with stocks building ahead of some summer ice cream demand.  Regardless, butter has stubbornly remained above that $2.000 since early April and we expect that to continue to be the case in the near term. It seems anytime we even sniff putting a $1 handle in place buyers show up in force.

We look for class IV to open higher, with butter slightly lower & NFDM higher to sharply higher.


It was a slightly lower session for the grains following the sharp rallies post USDA report on Tuesday. Corn and wheat finished lower without soybeans lending support. Corn was down 4.5 cents in May to $3.74 while wheat was down 2 to $4.4950 soybeans fell by 6.25 cents to $10.6975. This certainly isn’t what the bears were hoping for in regards to a correction after Tuesday….but you take what you can get.

Looking deeper into the USDA numbers from yesterday it’s difficult to find bearish data on the soybean front however if you look at lost wheat and CRP acreage that has been unaccounted for you can easily find almost 4 million acres of un accounted for land that could potentially go into soybean production, and that doesn’t account for any switching of corn acres into soybeans. On the corn front….well let’s just say we find it nearly impossible to envision the amount of corn demand that USDA is suggesting. Feed usage has been offset by increased DDG feeding over recent years and the projection for feed usage doesn’t seem to match up given that. Little will matter until soybeans find something bearish to latch onto however. Perhaps the fund position come tomorrow afternoon’s CFTC report will be enough to trigger a pullback but that’s wait and see for the bears.

We look for corn and wheat to open 3-5 higher, and soybeans to open 9-12 higher.


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