Morning Dairy Comments, 09/15/2016

Thursday, September 15, 2016

General Market News

· Gasoline prices could reach lowest levels since 2008 this fall

· Price of raw milk declines as China increases Lucerne imports

· McDonald’s gets final bids for North Asia outlets

· Chinese dairy processor Beingmate plans to invest more money in Ireland



Class III, Cheese & Whey

The class III and cheese markets took a breather Wednesday as the markets both finished mixed with little in the way of volatility or sense of direction. The spot price of cheese didn’t offer much in the way of clarity either. Blocks finished up 0.50 to $1.6700 while barrel cheese fell for the fifth day in a row finish down 2.25 cents at $1.5275 – both traded five loads. Market participants are a little leery of the 14.5 cent spread and we’re not entirely sure how it will close, or if it will by week’s end. But given the support of block cheese in the mid-$1.60s and the stability of futures at a premium to spot equivalents recently, the barrel cheese market now feels a little like a beach ball being held under water. 

Ultimately, both class III and cheese futures have spent the month of September chopping back and forth within a rather sizable trading range. When we take a look at it on a chart, one thing becomes clear – the trend that began way back in June is still largely intact and regardless of the myriad of market opinions, that trend is still upward sloping. Fundamentals are king and can change the look of the chart below in a hurry, but so far we can see prices (as indicated below by the October-December 3 month pack) are on the lower end of a rising trend channel. Admittedly this is a pretty simple way to look at a very complex set of circumstances that move markets. But we’re watching this type of channel closely because if the support holds, prices ought to eventually trade higher. If not, it may mean a retest of this year’s lows. Given the time of year and bubbling up of international cheese prices, we expect support to hold.

October-December Daily Chart


Dry whey futures continue to consolidate price strength from earlier this month/last month. The current January to December dry whey pack settled at 38.77 yesterday and while we could see more modest corrective trading, we expect prices will hold north of 35 cents for the foreseeable future.

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



Class IV, NFDM & Butter

The butter market settled in for a lower trading session as the price of spot butter dropped 2.25 cents on a single trade. Spot butter closed at $2.01 yesterday – the lowest cash price print since the first week of April. 105 futures traded hands in what was mostly a lower trading session (Feb contract was up slightly). Overall, the market seems content in the low-$2.00 range and while we could make an argument for sub-$2.00 butter (if we ignore EU prices which have skyrocketed over the past few months), the market remains well-supported at $2.00 for just about as far as the eye can see.
NFDM futures volume dipped yesterday with only 80 trades taking place primarily in 2016. Spot stability is somewhat to blame for the quieter trading yesterday as the cash call left the price alone for the third day this week. The market is reportedly quiet in the country as well. While powder is likely the dairy industry’s best avenue for export business right now, those channels are running rather quiet. 2017 contracts continue to trade around in a rather choppy fashion this month, since the beginning of August the January to December price average has tacked on a nickel. Prices could pull back some out there, but commercial buyers will likely support as they have a good deal of business yet to secure for 2017.

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


The corn market spent yesterday grinding from its early session price declines to finish the day with minimal gains as the September contract went off the board.  More anecdotal reports out of Illinois, Indiana and Missouri relating to the early harvest and yields below 2014 levels, when the all-time record yield was set at 171 bu/acre.  Brazil’s corn crop is beginning with a poor soil moisture reserve for the majority of the first crop area.  Parana, Santa Catarina and RGDS, the regions responsible for 47% of first crop production, though are all starting with normal to surplus soil moisture. Weather issues both here in the U.S., forecasts projecting a wet harvest in areas, and the dryness of South America should provide the corn market with a measure of support.  Funds were estimated to have bought 5,000 contracts on the day.

Soybean futures bounced within a tight range before ultimately settling lower ahead of today’s release of the NOPA crush figures. Market expectations are for the crush to have increased by 1 million bushels year over year to 136.2 million. Weather forecasts are calling for sporadic rains over the majority of the soybean growing areas, yet the additional moisture will have minimal impact on yields.  The South American soybean crop is about a month away from the start of plantings with market participants keenly focused on arid soil conditions. Funds were thought to have sold 3,000 soybean contracts and 1,000 meal during yesterday’s trade.
Weekly export sales came in about as expected with the exception of corn, which fell slightly below expectations.


We look for the grain complex to mixed.


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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