Morning Dairy Comments, 05/20/2016

Friday, May 20, 2016

General Market News

· Lacking new ideas, G7 to agree on ‘go-your-own-way’ approach to fiscal policy

· Deere posts lower Q2 results, cuts profit outlook

· ANZ suspends repayments for dairy farmers

· Fonterra plant evacuated after steam pipe burst

· Can Facebook save Australia’s dairy farmers?



Class III & Cheese

There seem to be three opinions of yesterday’s April milk production report emerging: bullish, neutral and will-most-certainly-be-revised. Frankly the report could really have pieces of all three of these things. But for today, we’re going to say that a 1.2% increase in milk production fell short of most expectations and, therefore, is not entirely priced into the futures markets. If spot cheese reverts course and trades lower – particularly to address the block/barrel spread – then we don’t expect a lot of strength for futures. But if blocks close the gap with the barrel market, nearby futures as they stand now may look undervalued in a hurry especially in light of yesterday’s report.

Sixteen states posted year-over-year milk production gains, 2 less than last month. South Dakota led the gainers, increasing 10.5%. Milk per cow in South Dakota was even with 2015, while cow numbers were up 10.7%. New Mexico recorded the strongest decline of the 6 states showing losses versus 2015, as the state was down 3.5% on 0.2% more milk per cow but 3.7% fewer dairy cows in the milking herd. Ohio held milk production steady with 2015.

Some will say the report is old news and that we have plenty of milk. It is and we do - we won’t argue that. Also, the fact that the, albeit modest, slowdown in production growth was not relegated to any one specific region may help build the case that the report could easily be revised higher next month. But futures markets won’t necessarily assume a revision is imminent from current price levels. We’re on (or very near) price lows. To make new lows will require bearish information and yesterday’s report just didn’t bring that kind of news.
Maybe the Cold Storage report Monday afternoon will change all that (see estimates below).

For the week ending May 7, dairy cow slaughter under federal inspection was up 1.7%, at 52,500 head, compared with the same period the previous year. Year-to-date slaughter levels are 1.4% lower than 2015 levels, with 1,102,600 head slaughtered.
We look for Class III, Cheese and Dry Whey to open higher.


Spot Session Results


















UP 1 ¾ 














UP ¾




Class IV, NFDM & Butter

NFDM posted a rather subdues trading session Thursday of just 48 contracts as the market continued to recoil after retesting recent high price points earlier this week. The market is sideways to higher recently, so even modest price declines are not indicative of a new trend lower. This morning prices are firming again.  The Dairy Market News Western Mostly NFDM price was up 1.00 cent from the previous week at 78.00 cents per pound. Last week’s CA Weighted Average price was 73.06 cents, up 0.09 cents from the previous week. The CME Grade A NFDM price is down 1.00 cent from last Thursday at 80.00 cents. There were 23 trades.
2016 Class IV contracts as the July through November months settled between down a penny to 4 cents higher thanks in part for the offsetting price action of the component markets. The January through May 2017 contracts displayed greater volatility as trading action in the Class III/IV spread was a major contributor to these contracts settling between 21 cents lower and 9 higher. 

Butter futures settled mixed, but mostly steady to higher though the gains registered were minimal despite the 0.75 cent gain posted during the spot session. The December contract posted the lone decline, slipping 0.350 cents lower, while the remaining months finished the day unchanged to 0.725 cents higher.  Butter futures accounted for less than 20 total trades as some market participants preferred to await the results of the milk production report before initiating and/or adding additional positions.

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


The significant losses tallied within the grain markets were muted by the close, most notably in the soybeans, allowing the various contracts to settle above their respective intraday lows.  The corn futures settled 9.50 cents lower in July and 8.75 lower in December as improving weather forecasts for the ECB, coupled with the less than anticipated rainfall over the previous few days, allowed farmers to resume planting a day ahead of schedule.  Producers are increasing their new crop sales as confidence levels surrounding the expectations for the size of the new crop are improving.  U.S. weekly export sales reported yesterday were at levels higher than market expectations for a total of 1.47 MMT as domestic high quality corn at relatively low prices piqued import interests.  Funds were credited with selling an estimated 14,000 contracts on the day.

The soybean futures recovered a majority of their early trading session losses which saw contracts down as much as 25 cents before closing out the day with a 3.75 cent loss in July and 4.00 decline in November.  The early session weakness was attributed to the improvement in weather models for the Midwest.  Weekly export sales were reported at nearly three times last year’s level at 556,400 MT with the prominent theory behind the increase attributed to late summer/early fall bookings in anticipation of South America pulling out of the main export programs 1-2 months earlier than normal.  There is some talk of Argentina soybeans being pulled from export due to quality issues, and instead being directed into domestic crushing. 

Wheat futures registered losses of 11.25 cents in July and 8.50 in December after the poor weekly export sales figures.  The lack of weather concerns in both the U.S. and global wheat producing regions has added to the bearish pressure.  Rains are projected to fall over the next five days across the driest winter wheat regions while the Western Prairie of Canada should see rainfall over the next 15 days and the Eastern Wheat Belt of Australia, both of which had become worrisome production locals.  Funds were projected to have sold 5,000 contracts throughout the day.

The charts below depict the markets’ concerns regarding Argentina’s ability to bring their crops to market in a timely manner, and has been partially responsible for the recent strength in the grain sector.  As of the week ending May 19th the corn harvest had reached just 28% completion compared to the 36% progress made during the same week of last year.  The soybean harvest has faced a greater struggle as progress has reached just 61% completion versus last year’s 88% for this time of year.  Argentina’s ports are working at a full pace, but a long line of cargo ships has emerged awaiting the delivery of grains, specifically corn.


We look for Corn and Wheat to open 1-2 higher, Soybeans 5-7 higher. 

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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