Morning Dairy Comments, 06/23/2016

Thursday, June 23, 2016

General Market News

· Brexit vote today, announcement tomorrow, below we discuss the details and likely market impacts

· The VIX spiked nearly 15% yesterday as the vote approaches

· Existing home sales hit fresh nine-year high for May

· Weather models continue to trend slightly wetter and cooler for early July in the corn belt

· Trading has commenced on GDT marketplace:

· Chilean dairy farm becomes largest robotic milking operation in the world:



Class III, Cheese & Whey

Somewhat of a calm seemed to overtake all of our markets yesterday. Most equities, FX & commodities markets made relatively limited price movements and a lot of the chatter seemed to be focused on the pending Brexit vote. We thought it best to give a quick overview of the anticipated schedule and the resulting market movements based upon either outcome. First the vote will take place today with polls closing at 10 pm local time in England, 4 pm Chicago time this afternoon. The first results should come out about 3 hours later with the final results likely not released until 7 am Friday in England which would be 1 am Chicago time. Currently the polls show almost a complete dead lock of 45% for, 45% against and 10% undecided, so it sure does look like a coin flip. As for the market fallout based upon what we’ve seen the expectation is the for the following; Vote to remain in the EU – the GBP likely strengthens substantially, rates climb as uncertainty lessens & equities rally with some risk premium coming out. Vote to leave the EU – GBP falls, USD likely strengthens as part of flight to safety, Rates likely to fall, Equities dip as risk-off trade embraced with the EU and Britain expected to underperform due to the need to re-draft trade agreements, financial transactions, travel regulations & immigration & labor laws.  

Yesterday the class III market opened to a mixed trade, softening to as much as 25 lower in July during the spot session but the forward curve strength seemed to pull the nearby months off the lows throughout the balance of the day. By settlements July remained down 16 but from there through the end of the year prices were 4 to 17 cents firmer as we traded moderate volume of around 1,300 contracts. The bull is working to stay in-tact as we hit fresh settlement highs for September through December class III. It’s been interesting to see class III maintain the upside momentum as the grain markets have pulled back, the corn market rally lasted about 40 days and at the moment we are around day 32 for the class III rally. Not sure if this will mean anything but certainly worth keeping an eye on in the coming sessions as producers will likely look to get more aggressive with the grain pullback and fresh highs for the move in dairy. Open interest continuing to fall on this move also indicates to us that this rally is unlikely to continue, details below.

Cheese futures were also mostly firmer on the day, with July down 0.017 but other contracts steady to +0.029 through the end of 2016. The weekly NDPSR prices were mostly in line with to a bit better than expected with the block price announced at $1.4208 and the barrels announced at $1.5065. Below we include the July to Dec cheese pack showing consolidation near the highs after topping recently. From a technical perspective this has the look of coiling before another move to the upside.

July to December Cash Cheese Pack Average:


Whey futures finished the session firm higher by 0.200 to 0.375 on moderate volume of around 40 trades. Weekly NDPSR prices bounced back after falling last week coming in at 26.30 cents on continued firm volume of over 9 million pounds.

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

Class IV, NFDM & Butter

NFDM and butter saw a lot more spot activity yesterday than their cheese counter-parts. NFDM prices rose by 2.25 cents and closed above the 90 cent mark for the first time since October last fall. Strength in the EU prices seems to be the current driver but there is likely some concern with the weather maps as well which have shifted most of the significant heat west of the corn belt which may make NFDM areas like CA & AZ suffer a bit. We have to wonder when the excess EU production that hasn’t made its way into intervention will undercut our export business but so far we seem to have upside momentum. Weekly NDPSR pricing was 79.55 cents higher by 0.66 cents from the prior week with volume holding mostly steady from the prior week at 15.56 million pounds.

The spot butter market was about the most active thing we saw yesterday as 8 trades took place. Perhaps surprisingly all of the trading resulted in an unchanged price as the market appears for now, to have reached a happy middle ground. This has led to a more sideways choppy trade of late in butter futures and yesterday’s settlements were mixed from -0.500 to +0.425 in 2016 contracts with volume firm at over 100 trades. We now likely bide our time until we get to the seasonal upswing late in the summer.

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


It was a very quiet day for the grains yesterday as markets opened mostly higher despite corn settling limit down Tuesday but pulled back toward unchanged and eventually closed mixed. There was very little in terms of fresh news out there but storms were rolling across the central corn belt and that old saying, “Rain makes grain.” seemed to take hold as the day moved along. Corn ultimately finished down 4.75 cents in December at $4.04, nearly a dime off the highs. Soybeans finished 6 higher in November at $11.1675 but that was some 7 cents off the highs and wheat was down 0.25 cents in September to $4.7225. It was a bit odd to see nearby futures stronger than the deferreds but the export market has been hot of late and basis has pushed up due to the export bid. Later this morning the export sales report will be released and we’d look for the market to take its cues from that report. Weather reports have trended cooler and wetter for the driest parts of the corn belt continuing to ease production concerns, for now.

We look for Corn to open 2-4 lower, Soybeans to open 2 to 5 lower and Wheat to open slightly higher. 


EU Intervention and PSA

The third tender for SMP Intervention closed on Tuesday with the results expected to be released today. SMP intervention stocks for May were reported at 211,192 tonnes, up from 153,406 tonnes in April. A combined 963 tonnes of SMP was offered into both PSA schemes last week. 144 tonnes was offered into Standard PSA with a further 819 tonnes offered into Enhanced PSA. The total offered into Standard PSA since the start of 2016 now stands at 6,890 tonnes while a total of 21,305 tonnes has been offered into Enhanced PSA over 2016 to date. SMP PSA stocks for May were reported at 33,756 tonnes, up from 32,026 tonnes in April. A total of 3,260 tonnes of butter was offered into PSA last week, down from 4,042 tonnes a week earlier bringing the total for the 2016 to date to 101,772. Butter stocks for May were reported at 91,139 tonnes, up from 79,024 tonnes in April. Cheese volumes offered in PSA increased last week on the previous week with 935 tonnes offered, up from 189 tonnes a week earlier. 48,269 tonnes has now been offered since the scheme recommenced on February 15th.

Dutch milk collections  for May

The latest data from Eurostat is showing Dutch milk collections for May totalled 1.26 million tonnes, up 8.3% on May 2015. The Y/Y monthly increase of 8.3% observed in May was lower than the 10.8% observed in April. Collections in May were 13.4% ahead of the three year average for May. Cumulative collections for the year to the end of May now total 6.10 million tonnes, 14.3% ahead of the same point last season. There was much talk this time last year about production being up significantly on the previous season in the wake of the abolition of quota. Dutch collections in May 2015 were up 6.6% (72kt) on the previous year. Despite some signs of production easing across some European countries, the 8.3% increase in May this year equates to an additional 97kt of milk collected last month compared with a year earlier. Collections in May equated to the second largest month for Dutch milk collections on record (since 1968) surpassed only by May 1983. Looking at the constituents, % milk fat was also higher in May at 4.35% vs  4.28% a year earlier. This puts overall milk fat collection up 10.1% year on year, with an additional 5000 tonnes of milk fat collected.

EEX Futures

A combined 74 lots (370 tonnes) traded on EEX yesterday with 59 lots (295 tonnes) of butter and 15 lots (45 tonnes) of SMP. Oct16 traded 27 lots, the first 22 lots at €3,175 and the remaining five lots at €3,150. Nov16 traded a further 27 lots, all at €3,175, while Dec16  saw five lots at €3,200.

SMP activity was focused on early 2017, with Mar17 trading 5 lots at €2,125, up €25 from its last traded price of €2,100 from last Friday and Apr17 trading 10 lots, the first five at €2,125 and the remaining five lots at €2,150.

NZX Futures

A combined 695 lots/tonnes traded on NZX overnight with 220 lots/tonnes of WMP and 475 lots/tonnes of SMP. For Nov16 the first 20 lots were at $2,450, up $15 from the previous day’s last traded price. Dec16 saw 100 lots at $2,455, up $25 from its last traded price on June 3rd and Jan16 traded the remaining 100 lots at $2,475, up $15 from its last trade also on June 3rd.

SMP saw all of the activity over Q4/Q1. Oct16 traded 50 lots at $2,100, down $50 from the previous day’s last traded price. Nov16 saw the biggest bulk, with 225 lots at $2,150, up $60 from its last traded price two weeks earlier. Dec16 traded 150 lots at $2,130, up $60 from its last traded price and Jan17 traded the remaining 200 lots at $2,250.

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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