Morning Dairy Comments, 09/23/2016

Friday, September 23, 2016

General Market News

· European butter prices reach highest level since 2014

· Oil struggles to climb as market weighs report of Saudi output-cut talk

· China’s bond bulls curb their enthusiasm after leverage crackdown

· Production, cows go up so milk price comes down



Class III, Cheese & Whey

Lower spot pricing and solid supplies of U.S. milk was the focus of Thursday’s trade, which resulted in another round of double-digit losses for Q4 2016 contracts. Trading volumes improved too signaling that the weakness may have some staying power. 1,563 class III and 519 cheese contracts exchanged hands as open interest increased by several hundred contracts in each market.

The USDA will release the August Cold Storage report after the markets close this afternoon. We expect stocks to have remained heavy in August. We expect American cheese stocks to lose 1.3% from last month, but rise 7.2% from 2015 levels. August stocks have been below previous-month inventories in 9 of the past 10 years. At 760.4 million pounds, stocks would be 95.8 million pounds above their five-year average. Weekly cold storage holdings of cheese in selected storage centers lost 4.2% during the month.

We look for total cheese stocks to decrease 1.3% from previous-month levels, but expand 7.2% above year-earlier levels to 1,255.7 million pounds. August’s total cheese stocks have been lower than the previous month’s level in 9 of the past 10 years. We will send out our analysis following the report.

For the week ending September 10, dairy cow slaughter under federal inspection was down 1.7%, at 50,600 head, compared with the same period the previous year. Year-to-date slaughter levels are 1.4% lower than 2015 levels, with 2,023,500 head slaughtered.

For all the somewhat bearish news above, we’d be remiss not to pay attention to the time of year and the global markets both of which could be supportive features as we head into Q4.

The Central Mostly Dry Whey powder price was unchanged from the previous week at 30.50 cents, while the Western Mostly price was up 0.38 cents at 32.63 cents.
We look for a mixed trade this morning.



Class IV, NFDM & Butter

Butter futures experienced a swift rally Thursday albeit on lighter trading volume (61 contracts in total). The cash price of butter rose 3.25 cents on 3 trades, but the futures prices had been ground into quite an ‘oversold’ situation leading to a bear bounce yesterday. Such a bounce could continue today as well even though there are thoughts of significant stocks from the USDA’s August report.

We expect August butter stocks to be 46.9% above 2015 inventories at 311.8 million pounds. August’s expected stocks level would above the five-year and 10-year averages. Month-to-month butter stocks should show a 6.4% decrease. Last year, July-to-August holdings were 16.6% lower. July-to-August butter stocks have decreased in 10 of the past 10 years and the last time that butter stocks increased in August was 1990.

Weekly cold storage holdings of butter in selected storage centers reported by Dairy Market News decreased 6.9% in August. On average over the past five years, stocks reported by Dairy Market News in August have accounted for 7.2% of all U.S. butter stocks, ranging from a low of 4.3% to a high of 11.8%.

NFDM futures reversed the course of pricing with a modest rally yesterday on lighter volume. In fact, it was the really spot market that showed impressive trading action. Spot NFDM increased by 1.25 cents to a new 2016 high of 93.50 on 17 trades! We’ve shown the chart below several times in the past few weeks and we’ll show it again this morning. The price of powder is officially breaking out to the upside in our opinion.



Rains have proved problematic in harvesting this year’s bumper crop, but the general weather outlook looks drier and better for harvest next week. Demand is mixed. Soybean export sales dropped for the second straight week to 32.2 million bushels, below the trade estimate range (33- 44 mbu) and 42.5 mbu on the comparable week last year.

Corn sales, on the other hand, rose 33% week-over-week to 36.3 mbu, and that was nearly 20 mbu ahead of the same week last year, and cumulative sales there stand a robust 323 mbu ahead of last year’s early pace. We look for a lower opening this morning, but if you’re an end-user – you have the green light to buy new crop needs.


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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