Morning Dairy Comments, 09/19/2016

Monday, September 19, 2016

General Market News

· September rate hike by Yellen could close confidence gap

· Oil rebound hauls up global stocks, commodity currencies

· EU offers dairy farmers’ “volume reduction” cash

· FrieslandCampina adds to EU scheme for milk supply cuts

· Venezuela says OPEC and non-oil stabilizing deal close


Class III, Cheese & Whey

The spot cheese market continued its decline on Friday with blocks down 2 cent to $1.65 and barrels down 4 cents to $1.48. 45 loads of barrels traded hands at the CME last week, which is the most since the week of Sep 15th, 2000. The front month Class III and cheese futures were the hardest hit as the futures have been premium to cash values.

Demand from retail and foodservice cheese buyers is said to be strong, although heavy inventories continue to keep prices for fresh cheese in check. Commercial disappearance in American cheese is down 0.1% year to date, while other than American cheese disappearance is up 3.8% ytd (see charts below). Also, fluid milk sales in July were down 3.98% from 2015, 2016 ytd sales are down 1.4% from 2015’s pace.

Cheddar, Mozz, and Gouda prices in Europe are being quoted around €3,400/mt ($1.73/lb) going into Q4. This should show some support for US cheese prices as the US is not at a burdensome premium in the export markets anymore.



Dry whey prices continue to consolidate with the cash markets staying firm with strong permeate demand in China, and a tight situation in the EU. Economics have strengthened for WPC and WPI producers with the market back in balance compared to last year. This should keep more of the whey stream going into higher protein production. WPC34 prices struggle to make aggressive moves higher as it is competing with feed grade NFDM at attractive levels. Feed grade dry whey prices in Europe are hovering around €830/mt or 42 cents/lb, which should keep a firm tone to the US whey complex.

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



Class IV, NFDM & Butter

The spot NFDM ticked up ¼ cent to 91 cents on Friday on 4 trades, and 7 bids at left at 91 cents indicating more strength behind it. The Western mostly NFDM price ticked up 1 cent to 92 cents last week. Quotes from the EU continue higher at a brisk clip. German quotes up 30 to €1,980, French up 70 to €1,970, and Dutch up 70 to €2,000. The avg of the EU quotes equal about $2226/mt or $1.01/lb. The strength in the EU SMP prices can be attributed to the government intervention taking product off the market combined with lower milk production in the EU (see chart below).


Tomorrow’s GDT auction will be front and center for the market. Overnight the NZX futures showed more firmness on good volumes. The auction will feature 19,250mt of WMP down 1.3% from last auction, and 8,625mt of SMP down 0.6% from last auction. Fat volumes will take a bigger hit with AMF down 7.9% and butter down 12.5%. Demand from China is strong and is keeping Oceania origin product firm. Some end users may not be as well covered as the market once thought.  

The spot butter market was down ½ cent to $2.03 on 3 trades on Friday. The market has tested lows of $1.98 on spot for the past 2 sessions with a rebound up $2.00. Overall the big debate is will the historically high values in fat come down with the strength in protein price. For now we expect the spot market and futures to find some support around current levels.


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


Corn and soybean values rallied on Friday as the 10 day forecast showed steady rains which have traders concerned with a slowdown in harvest. Beyond the 10 day horizon the Eastern Corn Belt is expected to dry up the western Corn Belt states will see little relief. Farmers are reluctant sellers at these values and we may need to see even higher values to shake some product loose.
Chinese soybean crush margins are very strong compared to historical numbers, see chart below from our broker Silvia Ren in China. This may keep the Chinese showing a steady bid for US origin beans especially with the shortage of offers from South America.


The CFTC report showed funds covered 34,580 short contracts as of last Tuesday and their shorts sat at over 151K as of Tuesday. The funds in beans trimmed their longs back by 4,661 and now show about a 73K long position.

We look for the Corn and Wheat to open steady-2 cents higher, Soybeans 7-11 cents 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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