Morning Dairy Comments, 08/11/2016

Thursday, August 11, 2016

“When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.” ~ Confucious


General Market News

· China unlikely to resort to aggressive monetary easing

· Crude oil steadies as IEA sees balanced market ahead

· Whey Protein market projected to grow by 7.2% per year through 2021 study claims



Class III, Cheese & Whey

Class III values finally saw red today with futures settling anywhere from +3 to -12.  With Class III and cheese leading the charge higher over the course of the last few weeks, cracks may be appearing as spot blocks saw yet another decline, trading below the $1.80 level.

Overall, markets continue to focus on the barrel trade as we sit near levels not seen since 2014.  Whether we remain here is yet to be seen. While some adverse weather has curtailed milk production, in some portions of the country, we are by no means short on milk.  Cheese production, from what we are hearing, is active and while some milk may be being diverted to schools at this point this is not unusual at this point in the year. Although demand is good, the most recent Restaurant Performance Index, for the month of June, saw a decline. The RPI for the month of June was down 0.3 percent from the previous month to 100.3.  That said, anything below the 100 level, according to the RPI is a sign of contraction. Regardless, the market seems to be poised for a return to lower prices and looks to be a bit overbought.  As we bid summer adieu, wrap up grilling season, and focus on the Oceania season one could expect to see a healthy retracement.  With that said, we know that anything can happen. 


On the international front, weather seems to be cooperating as the Oceania season kicks off.  Recent rains have been welcomed and if all is equal in the coming weeks the kickoff of the season should look promising.   Regardless, weather can be a finicky thing and we should all keep a close eye on how the season is shaping up. 

Dry Whey saw mixed trading yesterday, with futures up nearly ½ cent to down nearly ½ cent by late afternoon.  Since June, the December Dry Whey has traded in a relatively tight 2 cent range, only to break out of it in the last session. Overall, whey prices showing slight gains counter seasonally.

NDPSR for the week ending August 6th reflected an average block price of $1.70, an increase of 4.0 cents from the previous week.  Barrels averaged $1.81, an increase of 3.9 cents from the previous week.   Dry whey averaged 28.3 cents, an increase of 1.3 cents from the previous week.

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



Class IV, NFDM & Butter

NFDM saw mixed trade yesterday with futures settling anywhere from +0.50 to -0.375.   This signals a halt in the recent rally seen over the last few sessions.  It may be that NFDM is back in its “happy place” if the daily spot activity was any indication, trading 12 times with 3 bids and 4 offers left on the board.    As we know, there is plenty of product to go around and the recent bounce seems to have been short lived as buyers snapped up product below the $1.00 level.  That said, prices continue to trade in the lower 30%, from a historical perspective, and we expect that this will be the case in the near term. 

Butter saw a bit of red across the board today, with August seeing the steepest declines. But despite a 3.75 cent drop futures reaction was a bit tempered.  While the tone was weak, said weakness was on light volume.  By 3pm it looked as if only 58 contract had traded on the day.   Butter, as it has all year, continues to see swings.  As we move into September it is unlikely that we will see the same type of highs we’ve seen over the last few years, but as we know, anything can happen.

NDPSR, for the week ending August 6th, reflected an 84.9 cent average price for NFDM, an increase of 0.9 cents.   Butter averaged $2.22, a decrease of 7.50 cents from the previous week.


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


Once again grains had a relatively timid session in regards to price movement but the intra-day direction was notable. Soybeans were as much as double digits higher early in the session but finished the day down 5.75 cents at $9.8225 as rain systems should hit the majority of the corn belt over the coming days. Interestingly corn was pushing a bit higher as talk of temps 3 to 5 degrees above average for the month of August seemed to be driving some concern. By the close corn was up only ½ a cent at $3.33 so even the chatter seems unfounded. Export sales due out this morning are expected to be very large given the recent Chinese purchases. The wheat market rose 4.75 cents yesterday to $4.4150 for December as French wheat crop losses added some support. Export sales this morning will likely drive price action with the report coming tomorrow at mid-day.

We look for a steady to moderately higher open for the grains.

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