Morning Dairy Comments, 08/12/2016

Friday, August 12, 2016

General Market News                

·      Crude oil posts nearly $2.00 recovery Thursday as Saudi Arabia hints at freeze pact

·      Ireland’s Lakeland Dairies announced a price increase in monthly milk price for the first time in 18 months:

·      US & Mexico form dairy alliance:

Class III, Cheese & Whey

The spot market saw the blocks close steady yesterday stopping the slow decline but futures still finished mostly lower. Thursday’s session was by far the most active seen on the spot market as 5 loads of blocks changed hands all at 1.79 taking total weekly volume to just 6 trades. There was also an offer on the barrel though no trades occurred and prices didn’t budge from the $1.88 level. Futures worked lower after during the spot session ultimately settling 8 to 12 lower from Sept through Dec while 2017 contracts were mixed from +3 to -5 on the day. Volume was relatively light with just over 800 trades taking place. August doldrums? A balanced market? Trepidation after the sizeable recent rally? It’s tough to say at the moment but the market certainly doesn’t feel slow currently it just seems unsure at the moment. We hear reports of significantly lower prices being traded in the physical market but you’re never sure the age or specification of the product that is moving in those cases and it still seems as though the barrel market is in balance to a little short without much indication of that easing ahead of the labor day holiday. There after however the consensus seems to be look out for a pullback on cheese but there is also seemingly a lot of bullishness in regards to the international market of late. Certainly a class III vs. IV spread of $2.20+ seems unlikely to hold up for too long and maybe convergence will occur as cheese falls while NFDM rises but you can’t help but feel some mixed signals from the marketplace at the moment.  We’d not be surprised to see a little buying in the spot session to close the week but we’re doubtful of any sizeable price movements occurring to the upside. We may bide our time until the GDT auction next week offers the next pricing indication.

Weekly DMN prices for whey were steady to slightly higher and the gain of 1.12 cents on the western mostly midpoint is a positive sign but the physical market will soon be testing the 30 cent mark and futures which range from 32.25 to 36.50 in Q4 will be paying close attention to see if the rally can sustain itself.

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

Class IV, NFDM & Butter

NFDM futures traded sizeable volume of over 300 contracts yesterday as volume was very strong from August through February of 2017 with prices mostly higher but mixed from -0.050 to +0.500 on the day. The carry in the market continues to be a much talked about topic and perhaps that is driving the sizeable volume as well. The spot session finished down ¼ cent yesterday at 84.25 but looking at the futures market, September sits at 90.475 and October is 96.50 by December futures are at 102.00 so something will have to change. At the moment convergence seems likely to occur with spot moving higher and futures likely moving lower as that 90 cent mark we struggled to break through on the last upside run still looms large for the physical market. NFDM prices on the DMN remained unchanged this week mostly as expected given that the rest between the spot market and nearby futures prices in the upper 80’s.

The butter market saw futures trade just over 100 contracts and a good chunk of that volume came in the first half of 2017 months with a 5 lot of Jan to June packs trading at 206.50. The spot market traded to an unchanged settlement with bids below the market and offers above. That left futures mixed as well from +2.00 in September and steady to -1.975 cents from there forward. This feels like the calm before the storm to come as entering the seasonal demand period with higher prices has seemingly meant a delay in the drive to secure product this year…choppy waters ahead!

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


Export sales this morning we’re expected to be extremely strong and they did not disappoint. Soybean exports were 113.9 mln bushels vs. trade estimates for 77.1 to 106.6, corn exports were 63.6 vs. estimates for 39.4 to 59.0 mln bushels and wheat exports were 22.3 mln vs. expectations for 12.9 to 20.2. While all three easily exceeded the upper end of expectations the market didn’t garner too much strength from the announcements as we mostly toiled on either side of unchanged throughout the day. Soybeans got an early boost from the report but couldn’t sustain and closed up just 1.75 cents at $9.84, corn finished the day down 1.25 cents at $3.3175 and wheat prices retreated after yesterday’s gains closing down 4.50 cents at $4.37. Today’s action is all about the report at 11 central time. Estimates are included below, while this report isn’t typically a big market mover, last year’s report did drive prices down nearly 20 cents. With funds holding a sizeable short in both corn and wheat it would seem to us a bullish surprise for those crops would be most likely to trigger a surprise move if anything.

We look for a mixed open for the grains with price movements likely to be limited up until the report release.


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