Morning Dairy Comments, 06/13/2016

Monday, June 13, 2016

General Market News

· Dairy Australia misleads Coles, Murray Goulburn milk disaster

· Brexit fears push global stocks lower

· Oil falls as U.S. drillers ramp up operations

· Next Fed interest rate move could be a cut, Eastspring Investment says

· China slams on the stimulus brakes



Class III, Cheese & Whey

Blocks were bid steady at $1.4750 on Friday with no offers or trades, while barrels traded 2x settling up a ½ cent to $1.51. Class III and cheese futures traded sharply lower as the market corrected from last week’s swift rally. A lot of last week’s moves on the futures market was credited to speculative traders liquidating out of short positions. This buying has moved the July to December cheese futures up a dime to a $1.65 average in just 8 trading sessions!

From a 30,000 foot view, we think we’re witnessing a market in transition. This doesn’t mean we have to continue higher today – although that could happen. What it means to me is that the market is shifting from a sternly bearish posture to a more neutral one. That is typically the case before more long-term price advances are made. Nevertheless, the current forward curve premium looks a little lofty with spot cheese around a $1.50.  But the buying is not completely unwarranted though as retail prices are still attractive to consumers. According to the USDA’s National Retail Report-Dairy: U.S. weighted average advertised retail price for an 8 ounce pack of natural shredded cheese is $2.23, up $0.04 from last week, but down $0.18 from a year ago.

Also, the Restaurant Performance Index for April showed a 101.6 number indicating further growth in the industry.


Restaurants fighting for market share with new offerings (think “All day Breakfast”) are likely a big driver. Taco Bell’s new Quesalupa, which debuted on February 8th, was met with some interesting criticism. One customer tweeted, “Dear @tacobell, Why can’t the Quesalupa be as cheesy as your commercials? -Sincerely, a customer who would marry cheese”. Customers tweeted to Taco Bell complaining there was not enough cheese, and that reached the attention of their corporate headquarters in Irvine, CA.

July-Dec Cheese Average:

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


Class IV, NFDM & Butter

Friday’s NFDM spot market traded up 2 ½ cents to 83 cents on 11 trades. NFDM futures were firm across the board as the market dials in on the relentless EU buying, tighter stocks, and good demand which is causing a more positive sentiment. The 4th quarter futures have seen consistent buying as the market continues to add risk premium to the forward curve.

Last Tuesday’s EU Tender showed 36,361mt offered into intervention with prices unchanged. Nearly half of the tender’s volume was contributed by Germany and France. The next tender will be on next Tuesday, June 21st with results posted the following day. The talk is that the proposal to expand the intervention by 130,000mt will be approved soon. This Wednesday’s GDT auction will feature 10,440mt of WMP and 5,400mt of SMP. The forecast total supply for the next 12 months is at 682,810mt, down 0.1% from the previous forecast.

The spot butter market traded 2 cents lower to $2.20 on 1 trade. Futures showed further firmness from Thursday’s limit up move. The market is still staring in the face of large inventories; although a lot must be already committed as butter manufacturers claim stocks are comfortable. Otherwise, it appears a good amount imported fat in the statistics that don’t fit buyer’s specifications. Prices are staying firm with buyers seeking coverage for the demand season. Butter production out of CA was down 9.5% in April. The estimated fluid milk sales report was out last week, Year to date: whole milk sales are up 4.8% while skim milk sales are down 10.3%. Total conventional milk sales volumes are down 0.7%.

We look for NFDM to open firm and Butter to open steady/mixed.



The USDA’s WASDE report on Friday, although the market did a very accurate job of pricing it in. The corn carryout dropped to 1.708 billion bushels on a 100 mil bushel increase in exports. (See S&D tables below) The USDA showed Brazil’s corn production at 77.5MMT. With a drop of 3.5MMT (138 mil bushels) in Brazil production that will cause US exports to naturally be absorbed in the market. The CFTC report on Friday showed that money managers added a whopping 81,000 contracts to their longs position as of last Tuesday.

The risk to the market is really a tightening soybeans balance sheet. The old crop-new crop spread saw significant pressure following the report, which closed down 8 cents as new crop was bid higher. Brazil soybean production was seen down 2MMT to 97 MMT, while Argentine  production was kept unchanged at 56.5MMT.The new crop carryout dropped down to 260 mil bushels as new crop exports were raised to 1.9 billion bushels. There will be no shortage of fireworks this summer as the USDA’s June 30th report will be sure to entertain.

In the end it's all about the yields this year which circles back to the La Nina's impact. Even with a 2 mil acre shift to soybeans this buffer will only partially offset a 1 bu/acre loss from the USDA's current yield projections of 46.7bu/acre!

We look for Corn and Soybeans to open 10-13 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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