Morning Dairy Comments, 05/27/2016

Friday, May 27, 2016

General Market News

· Russian agribusiness to remain competitive if food embargo canceled

· European butter prices could rise due to cold, wet spring

· CDFA permanently raises whey value in milk pricing

· Regulating Australian milk prices won’t save dairy industry

· Here’s the ‘milk list’ for the 100th running of the Indy 500

NZX Milk Futures Contract
Over the last 22 years the INTL FCStone dairy group has participated in the launch of every new dairy futures/option contract. Yesterday marked another milestone with the launch of the new milk futures contract listed on NZX.

As the first and still leading clearing member of the NZX dairy commodity space, we are honored to participate in the new milk futures contract. We are excited help educate the industry about this risk management tool and thank you for your on-going trust and business. 
Our dairy teams in U.S., Singapore and Europe are always available to answer any questions you have on this new contract or any of the other NZX contracts.



Class III & Cheese

After a brief pause Wednesday, the spot cheese market pushed higher again yesterday amid boatloads of skepticism. Class III and cheese futures followed suit, turning higher by midday and finishing strong on growing volume (over 1,400 class III contracts vs. under 1,000 the day before).
The news is bearish but the price action is not and that should be on your radar. If you’re looking back at data points, you may be missing part of the story. Futures markets are largely made up of future perceptions. Those perceptions are grounded in data, but take into account a host of other unknowns. That’s what the market seems to be trading lately.

We’ve said for the past few weeks that the market was showing signs of bottoming. Earlier this week, we mentioned there could be a ‘”skeptical” rally here ahead of the Memorial Day holiday. We’re not always right, but had we looked only at the data presented we would have been most assuredly wrong. Pride in our ability to sift thru the bearish data would have gotten in the way. We would have missed a key component to the markets, which is to account for the unknown. And one way to do that is to monitor technical indicators, trade volume and open interest movements among others signals.

All this doesn’t change the fact that there is plenty of cheese out there. It doesn’t change the fact that there is a proposal on the table to increase intervention stocks in Europe right now because there continues to be an overabundance of product. It doesn’t change the fact that the first cutting of hay in Wisconsin, for example, went off for many without a hitch this week and the quality is largely great. It doesn’t change the fact that globally we seem to have plenty of milk (even if things are beginning to tighten up out West lately). Understand the data, but pay attention to price behavior because the market may be misguided from time to time – but it’s not wrong.

With class III milk from July 2016 to December 2017 at around $15.20 and with cheese futures for the same period just below $1.6600, we think commercial buyers ought to be taking a closer look at long-term hedges. It would be hard to argue for a massive rally to the upside, but a good price is a good price. And it’s hard to argue with that.

The Central Mostly Dry Whey powder price was unchanged from the previous week at 23.75 cents, while the Western Mostly price was 0.25 cents higher at 23.88 cents.

For the week ending May 14, dairy cow slaughter under federal inspection was down 2.7%, at 50,200 head, compared with the same period the previous year. Year-to-date slaughter levels are 1.5% lower than 2015 levels, with 1,152,800 head slaughtered.

Look for Class III and Cheese to open mixed mostly higher and Dry Whey steady.

Spot Session Results


Class IV, NFDM & Butter

Butter futures ended the day’s traded with mixed pricing with contracts settling between a penny lower and 0.225 cents higher after and active trading session that saw over 110 contracts change hands.  Despite the 1.500 cent decline tallied during the spot session the futures market remains well support, lacking the will to test to $2.100 level in the second half contracts as the approaching summer months have buy side interests looking for coverage. 

NFDM futures rejected Wednesday’s weakness yesterday and turned higher amid a continued two-sided trade. The market is trending sideways and the news is still bearish, but we continued to be cautiously bullish on NFDM as a very inexpensive protein source in the world today (same with whey). The Dairy Market News Western Mostly NFDM price was up 0.75 cents from the previous week at 78.75 cents per pound. Last week’s CA Weighted Average price was 76.43 cents, up 3.37 cents from the previous week.

Class IV, NFDM and Butter are called to open mixed.


Corn futures emerged from yesterday’s choppy trading session with slight gains as a focus was placed on the old crop/new crop spread trade.  Weekly export sales were reported at higher than anticipated levels, and have now reached a cumulative point that the USDA should raise its annual corn export figure for 2015/16 by 25 mln bushels. Funds were credited with buying 12,000 contracts on the day.

Soybean futures closed out their trading session in the red after a strong bullish run in the overnight session as export sales failed to impress the marketplace as funds sold 8,000 contracts.  Soybean meal exports though topped expectations with funds buying 5,000 contracts. Soybean meal futures ended the day marginally higher while domestic meal basis remains soft and well supplied. 

Wheat futures finished with double digit gains, supported by technical buying efforts and short covering into the close. The wheat harvest is just getting underway and the weather forecasts calling for rain over the next five days could impact the quality of wheat in the ground. 

Corn and Soybeans are called to open mixed.

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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