Dairy Report, 08/08/2016

Monday, August 8, 2016

General Market News

· Stock markets, U.S. Dollar climb as risk-on mode dominates

· Crude oil rises on renewed calls for OPEC production freeze

· Dean Foods misses on profit expectations while earnings increase year over year

· NZ’s Landcorp to halt palm kernel use



Class III, Cheese & Whey

Class III and cheese futures were driven higher Friday by yet another strong showing during the spot cheese session.  The Block market lead the way higher, gaining 5.50 cents, while the Barrels managed just a 2.50 cent gain as market participants continue to debate the merits of this recent surge in spot values against cheese production and inventory data.  Last week the Block cheese added a total of 8.25 cents to finish at $1.8150, 6.50 cents higher than during the same period last year.  Barrels tacked on another 10.50 cents to finish at $1.8800 which is 16.25 cents higher year over year. 

The 2016 Class III futures closed out the week with gains ranging from between 7 and 17 cents while the 2017 contracts settled with mixed pricing ranging from 4 cents lower to 15 higher.  The cheese market submitted a mirroring performance as the 2016 months closed 0.4 to 1.5 cents higher while the 2017 months were between down 0.3 cents to up 0.4. 

Over the weekend New Zealand experienced some of the worst winter weather the nation has seen in decades.  Reports are circulating of wide spread power outages including the dairy producing regions.  While this snow storm could cause significant stress to livestock most dairy cows are now dry with the impact to milk production thought to be limited. 

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



Class IV, NFDM & Butter

The NFDM spot market was up ¼ cent to 83 ¼ cents with no trades. The NFDM futures traded firm across the board. AMS printed 84.07 cents last week on 18.4 mil pounds. CWAP showed 79.2 cents on 9.1 mil pounds.  Last week SMP prices in the EU showed German prices at €1,800, French at €1,740, and Dutch at €1,770. 4,636mt of SMP entered the EU’s intervention last week, See chart below. Less momentum of selling as spot prices are above intervention levels. German offers for Q4 are around €1,950, but deals are not getting done there.

Butter continues with spot up 3 ¾ cents to $2.27 on no trades. Futures were firm as there may be more short covering in play. The USDA said we made 6.4% more butter vs June 2015. The sentiment had changed rather bearish over the past 2 weeks as the market was thinking buyers were well covered. Prices sharply turned around as apparently buyers still need to get deals done for Q4. Brokers and manufactures both had an uptick in calls inquiring on butter last week.


We expect NFDM, Butter and Class IV to open steady to higher.


The grain complex posted gains across the board as the soybean market led contracts higher on the shift in weather forecasts that now call for hotter and drier conditions for the Eastern Corn Belt.  The 2016 soybean contracts settled between 13.25 to 17.75 cents higher as weather patterns shifted rains further to the west and south while moving away from the dry areas of OH, Eastern IN, MI and SD.  Taking into account the projections for continuing demand for U.S. soybeans from global importers and the soybean market should see continued strength ahead of Friday’s USDA report.  Funds were estimated to have bought 8,000 soybean and 3,000 meal contracts during the session. 

Corn futures were lifted Friday in sympathy to the soybean rally on the shift in weather forecasts as the September and December contracts gained 3.25 and 3.50 cents respectively.  Yet another corn yield estimate was released Friday well above the USDA’s forecasted 168.8 bpa, this estimate coming in at 169.8 bpa, reinforcing the market’s bearish sentiment for a larger than anticipated crop.  Funds were credited with buying 5,000 contracts on the day. 

The wheat futures jumped higher to close out the week as speculative shorts covered positions while France drastically cut its soft wheat production estimates from 26.95 mmt last month of just 29.1 mmt.  Funds were thought to have bought back 12,000 contracts while the Sept/Dec spread narrowed 5 cents.  Despite the large reduction in the French wheat crop, the increased production levels of the remaining five other major exporters puts this year’s projected carryout within the upper 1/3 of the last 15 years. 

We look for the grain complex to open 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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