Morning Dairy Comments, 07/29/2016

Friday, July 29, 2016

General Market News

· U.S. economy grows only 1.2% in Q2, below expectations

· Significant price increases at First Milk in Britain

· Chipotle’s first burger restaurant to open this year in Ohio

· Lawmakers want USDA to boost domestic milk sales

· Crude oil enters bear market after losing $41 handle



Class III, Cheese & Whey

Class III, Cheese and Dry Whey traded mixed on mostly light volume again yesterday as the markets continue to chop sideways this week. Hot weather and stability to spot prices are supportive features but outside markets (crude oil, grains) are calming the nerves of the buy side resulting in a rather orderly, light volume trade around current price levels to close out the month of July.

Spot block cheese inched higher again yesterday while barrel cheese prices have remained untouched all week. Chatter around the next move is mixed. Some think cheese is poised to trade $1.80 or higher. Others expect that we’re too high priced relative to current cheese availability. We hear of both blocks and barrels moving freely in the country although barrels do seem to be a bit tighter even today, so the inverted pricing continues to corroborate anecdotal discussions. The issue we see is that there doesn’t seem to be much worry in the cash or futures markets this week. That lack of buyer worry coupled with generally solid milk receipts in cheese producing areas all under the umbrella slower economic growth than expected leads us to think the next move for spot cheese will be lower. For now, things look stable to close out July. 

Dairy producers have done a good job of selling the rally that began in June, but have become somewhat quieter now as forecasts have turned hotter for key milk producing regions. We all know how unpredictable the futures markets can be especially when weather is a driving factor. But producers ought to put pen to paper and see what the profit margins look like. Our guess is your margins look quite a bit better than they did just a few months ago. If you haven’t hedged any of 2016, now looks like an opportune time to get some hedges on the books – or add to existing coverage. Even if that just means buying some put options below the market. 2017 likely looks even better given where new crop corn prices are trading. This is a good time to get some work done for securing 2017 margins as well. Give us a call with questions.

For the week ending July 16, dairy cow slaughter under federal inspection was up 0.2%, at 53,000 head, compared with the same period the previous year. Year-to-date slaughter levels are 1.7% lower than 2015 levels, with 1,597,900 head slaughtered.

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


Class IV, NFDM & Butter

The downside pressure on spot butter didn't come to an end yesterday and with expanded limits, futures fell sharply once again. The spot market fell by 5.25 cents and while there was a bid it was well below the market at $2.10 as the settlement was $2.17. Futures dipped to levels we haven't seen since the first few days of June and buyers stepped up to the plate on the lower prices. Volume was a sizable 262 contracts with settlements ranging from -0.500 to -6.975 cents from August all the way out to July 2017. There were a number of Q1 and Q2 packs for 2017 that traded with at least 11 trades occurring in each of the first 6 months of the year. While inventories remain large the market will likely pause the pullback in the coming sessions as buyers without coverage for the fall months will likely step in to offer some support. From a technical standpoint we are now in oversold territory and August is just around the corner and seasonally the calendar flipping to August has meant higher prices. 


The NFDM market was seemingly trying to keep up with all the action seen in butter as volume was a firm 130 trades nearly all of them coming in the 2016 contract months. Despite the big volume price changes were rather limited with settlements -0.150 to +1.675 cents. The spot market continues to trade actively with 3 trades taking place yesterday and the market settling at 83.75 cents down 1/2 a cent. The market is seemingly well balanced at the moment and while we're not bullish on futures, which are pricing in a very large cost of carry, we do expect to see some upside on the spot market, back to the upper 80's. Weekly DMN prices (next page) were mixed with the Central mostly midpoint up 3 cents to 90.00 and the Western mostly midpoint price down a penny to 89.00. 

​We expect NFDM and Class IV to open mixed and Butter to open lower.


Grains were unable to hold on to gains made during Thursdays overnight and ultimately settled slower across the board. Export sales for old and new crop corn came within trade expectations. Export sales for beans on the other hand came in at negative 0.1 million bushels due to cancelation. However, total 2015/16 export totals are still higher than USDA expectations. Funds were thought to be sellers of 10,000 corn contracts and 5,000 of bean contracts yesterday, bringing their net to -49,758, and 80,276 respectively. Argentina corn harvest was pegged at 58% complete; farm from the +70 % LY and +80% 3 year average. The Corn Belt witnesses some ample rain coverage yesterday and more is being forecasted into August. Favorable weather should continue to limit upside gains.

We look for Corn, Soybeans and Wheat to open 1-3 lower.



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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