Morning Dairy Comments, 09/02/2016

Friday, September 2, 2016

General Market News

· Unemployment rate flat at 4.9%, Fed rate hike unlikely soon

· Japan may invest $10 billion in Russian oil firm

· Ireland appeals E.U. ruling to collect billions in taxes from Apple

· Yum Brands sells piece of China business ahead of spinoff

· The Thai company with Chinese roots and a global vision



Class III, Cheese & Whey

Class III and cheese markets are not content to go quietly into the long holiday weekend. Over 2,200 class III and nearly 600 cheese futures traded hands as prices bounced Thursday as a semblance of stability was revealed during the spot call. Blocks opened and closed unchanged with no activity, but barrel cheddar closed up ½ cent after opening ¾ cent lower. This kind of open lower, close higher dynamic is typically indicative of additional strength to come. Add in the fact that we saw multiple buyers bidding for barrels, we expect at least continued stability to barrel prices again today. 6 loads traded, so we’d be remiss not to point out there is cheese available. But if spot can bounce from the mid-$1.60s, the inspiration to go higher may be less about supply and more about demand for product heading into the fall.
Total cheese production is on a 39-month streak of gains. July production posted a 1.4% year-over-year increase at 1,016.7 million pounds, which is 96.8 million pounds higher than the five-year average. American cheese production gained 0.2% to 398.04 million pounds, which was 31.4 million pounds above the five-year average. USDA revised output of American cheese down 0.4 million pounds to 389.4 million pounds. Other cheese output was revised 3.7 million pounds higher, and total cheese output gained 3.3 million pounds to 990.8 million.

At a time when we typically see a seasonal slowdown in cheese production, this July report appears bearish on the surface. In fact, if you remember nothing else, remember that July cheese production is the 4th highest monthly cheese production on record. But American cheese production is still 0.4% lower on a daily basis. And we price to cheddar, which is under the umbrella of American style cheese, which seems to be our weakest link in cheese production lately.

California cheddar production was down 12.9%, Minnesota’s production was 11.2% lower and Wisconsin skirted along with modest decline of just 0.4%. Idaho and Iowa picked up some of the slack, but overall cheddar production was down 1.7% from last year. This has been a trend now for 3 consecutive months and the fact that it’s continuing makes the report less bearish in our estimation.

Dry whey production was up 1.2% but demand remains strong for whey as stocks were estimated to have fallen 10.1% from last year and 5.6% below June. Dry whey futures remain well supported. The Central Mostly Dry Whey powder price was unchanged from the previous week at 29.50 cents, while the Western Mostly price was 0.88 cents higher at 32.13 cents.

Excellent producer margins and weak beef prices continue to keep cows in the milking parlor. For the week ending August 20, dairy cow slaughter under federal inspection was down 0.2%, at 54,900 head, compared with the same period the previous year. Year-to-date slaughter levels are 1.5% lower than 2015 levels, with 1,861,600 head slaughtered.

Even considering the premium futures hold to spot today, the behavior of the class III, cheese and dry whey markets remain strong. Ultimately we see continued strength in the cards for class III and cheese futures as we  get into the month of September.


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



Class IV, NFDM & Butter

Butter futures traded lower yesterday on heavier volume of 246 contracts while NFDM firmed up as multiple buyers bid for Grade A during the spot call pushing the price up ½ cent to 86.00. The dairy products report read mostly bearish for both products.

Butter production gained 5.95% to 143.6 million pounds, 8.6 million pounds above the five-year average. The USDA did revise June butter production down 1.6 million lbs., but production remains more than adequate. Butter output so far in 2016 is up 5.1% from 2015 levels on a daily basis. All of this figures into a butter market that is still poised above major long-term support and a big psychological price level of $2.00. We expect a continued choppy traded ahead of the long weekend.

NFDM output was lower, down 1.5% to 152.9 million pounds. Skim milk powder (SMP) output was higher, up 32.9% to 46.3 million pounds. NFDM output was 10.9 million pounds above the five-year average, while SMP was 7.7 million pounds higher. But it’s really the manufacturers stocks and shipments that add to the bearish tilt. Manufacturers stocks fell 7.2% from last year, but we had so much powder last year that a 7.2% decline is still 19.7 million lbs. above the 5-year average. And shipments were down 10.2% from 2015, which is 12.5 million lbs. below the 5-year average of about 136 million lbs. for July.
While we can call July’s production stats “bearish” the market is very much already priced this news in. We think it is far more important to watch the technical action of the market over the next few months as the market appears poised to make a break-out to the upside. Should this happen, the news and stories and stats will likely change quite quickly.
Weekly Spot NFDM Chart


The Dairy Market News Western Mostly NFDM price was unchanged from the previous week at 90.00 cents per pound. Last week’s CA Weighted Average price was 85.18 cents, up 0.78 cents from the previous week. The CME Grade A NFDM price is up 1.25 cents from last Thursday at 86.00 cents. There were 10 trades.

We expect NFDM to open firm, Butter and Class IV mixed.


Sentiment around the grain complex is turning from aggressively bearish to more neutral as traders are slowly adopting a “nowhere to go but up” mentality. With near record feed grain shorts in the grain complex and the lion’s share of the negative news known, corn and soybeans look poised for at least a “bear bounce” from current levels. End-users ought to be working hard to make sure they have some new crop coverage – whether physical or financial. Call us if you have questions.

We look for the grain complex to open higher across the board.

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.

Market Intelligence Free Trial

Meet the Team

Kansas City, MO
1251 NW Briarcliff Parkway
Suite 800
Kansas City, MO 64116
Tel:+1 (816) 410-5079



Our privacy policy has changed. View our privacy policy to learn more.