Morning Dairy Comments, 05/17/2016

Tuesday, May 17, 2016

General Market News

· Oil rally fading this morning

· Fonterra lifts milk payment to farmers for May and June

· Fonterra pays dividend early to help farmers during off-season

· US housing starts climb 6.6% in April

· US consumer prices jump 0.4% in April

· Pro Rugby player Victoria Folayan joins BiPro

· 7 things the US should do with the 1.19 billion pound cheese surplus



Class III & Cheese

Class III and cheese futures finished higher yesterday after the spot call found cheese prices more stable. Spot blocks were unchanged at $1.28, while barrels tacked on another penny to close at $1.33. But the more important feature of the trade yesterday was that the spot market didn’t quickly reverse back to the downside as we had seen last week. Spot held together and that is lending itself to futures “bottom fishing” ahead of GDT today and April Milk Production figures to be released Thursday afternoon. 

This will be the last GDT event of the 2015/2016 season. We expect the auction to be up by 1-3% as lower volumes on offer mingle with a modest improvement in global sentiment over the past few weeks. NZX futures were also firm overnight.
With spot prices gaining some stability, today’s GDT may set up more support heading into Thursday’s milk production report. Weather is still very favorable for milk production throughout much of the US and while some milk sheds have likely already past peak production, there is little worry with weather today. There are some hotter temps on the way for Texas and Kansas by the weekend, but for now weather continues to promote good production.

From a technical perspective, class III and cheese futures are rather oversold and “bargain” hunters look to have been light buyers yesterday. Looking at the class III chart below we see the Relative Strength Index (RSI) (momentum indicator we discussed yesterday) is firming up as the July contract made new price lows. Additional strength is needed to confirm the technical buy signal, but July is not the only contract showing this divergence and it’s on our radar as the downside the momentum seems to be waning.

July 2016 Class III – Daily Chart


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

Spot Session Results


















UP 1







DOWN ½      











Class IV, NFDM & Butter

Spot nonfat was offered as low as 80 cents before bids showed up and settled at 81 cents on 3 trades. NFDM futures were firm across the board. Most are still skeptical of the firmness in the market and yesterday’s trade will likely prompt more of that. The uptick in prices yesterday came on light volume and a slight decrease in open interest, which is the white bread of a trading day – there’s just not much to it. Still, we think there is more than meets the eye with powder prices and the behavior of the market is still indicative of a firming market.

The spot butter market closed unchanged yesterday with two offers above the market. Futures were mixed on light volume as the market struggle to find any direction. The market needs some fresh info to trade on. The high inventory numbers and record fat imports are old news, and the futures have brushed off that fundamentally bearish info. Altogether the market feels in balance here coming into the summer.

The USDA’s Fluid Milk Sales Report for March was released Friday. Sales of conventional fluid milk were down 0.6% from last year. Although the trend continues to higher fat, Whole Milk sales were up 5.2% in March and up 4.6% year to date. Conversely skim milk sales were down 10.2% in March, and down 10% year to date.

We look for Butter to open steady and NFDM to open 0.500 to 2.000 higher.


Informa was out yesterday estimating national corn acres are only down 200k from the USDA’s March intentions of 93.6 mil acres. Informa estimated the soybean acres up 800k acres above the USDA 82.2 mil acre number.  

The NOPA Crush report showed 147.6 mil bushels crushed right in line with trade estimates. See chart below, we are running below the 150.4 mil bushels last April. The cumulative crush since September has been 1.2 billion bu, down 7 mil bu from last year’s 8 month pace

Soybean planting progress came in last night at 36% vs 5 yr avg of 32%. Corn progress showed 75% vs 5 yr avg of 70%. See the charts below to track the progress state by state.

Funds were estimated to be buyers of 8,000 corn and were flat in beans.

End-users of corn are by and large waiting for some material price break before they step in for new crop purchases. While we’d agree that a good crop this year could easily manifest low $3.00 prices, we’re not seeing that happen ahead of pollination. The corn market could sink back to $3.85-$3.90 and give up some of the past week’s gains, but we don’t see it going much lower than that anytime real soon. 




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