Morning Dairy Comments, 09/30/2016

Friday, September 30, 2016

General Market News

· About 10,000 German dairy farms plan to reduce milk production in effort to boost prices

· January to August milk supply up 8% on last year

· Crude oil falls on profit taking and U.S. Dollar rally

· Eurozone inflation rises to highest in two years

· Lawmakers to Wells Fargo CEO: ‘Why shouldn’t you be in jail?’



Class III, Cheese & Dry Whey

Class III and cheese futures erased Wednesday’s gains yesterday as spot selling applied pressure during the spot call once again. It’s hard to gain futures traction to the upside when futures are already trading at a 50-80 cent premium. Nevertheless, there is a battle going on in spot prices around $1.50. Sellers have the cheese, but buyers have the desire. There is a value play happening in spot and we don’t expect that to stop at current prices. So far 61 loads of barrel cheese have traded this week alone. The last time that many barrels traded in a single week was in April 2011 when 75 loads traded in one week.

The good two-sided trade in spot at current levels is indicative of support and ultimately what we believe will be a ‘complicated’ bottom for spot cheese prices. We say complicated because it’s not a swift blow-out to the downside followed by a sudden return to firming prices. We’re back and forth around the $1.50 mark and we expect that to continue as we roll into October, but we don’t expect much additional weakness to spot prices from here. Presently, we see this we see the recent class III/cheese weakness as an excellent buying opportunity for those commercial hedgers who are looking for additional coverage for the balance of 2016 or need to set initial budgets in 2017.

Dry whey has also corrected over the past several weeks, but appears to be finding support in the mid-30 cent range. Look for mixed trading here, but chatter seems to be turning to concerns around EU milk production and China’s appetite for whey proteins over the past several months. The Central Mostly Dry Whey powder price was up 0.50 cents from the previous week at 31.00 cents, while the Western Mostly price was unchanged at 32.63 cents.

For the week ending September 17, dairy cow slaughter under federal inspection was down 6.02%, at 56,200 head, compared with the same period the previous year. Year-to-date slaughter levels are 1.6% lower than 2015 levels, with 2,079,700 head slaughtered.

We look for Class III and Cheese to open steady, modestly higher and Dry Whey to open steady.



Class IV, NFDM & Butter

Class IV futures closed out yesterday’s trading session with contracts settling between 13 cents lower and 7 higher as the weakness of the NFDM market overwhelmed the mostly steady to higher butter trade. Butter futures closed as much as a penny higher as buy side interests found value in the sub-$2.00 prices despite the weaker spot price. As the calendar rolls over to October the talk of burdensome stocks will give way to holiday demand as those that have yet to establish any coverage in the market will bid contracts back above the $2.00 mark.

The Dairy Market News Western Mostly NFDM price was up 2.00 cents from the previous week at 95.50 cents per pound. Last week’s CA Weighted Average price was 87.43 cents, up 0.33 cents from the previous week.

We look for Butter, NFDM and Class IV to open mixed.


Corn futures traded within a tight range ahead of today’s USDA crop report, estimates below, as weekly export sales failed to reach expectations.  Total sales for the week were 575 tmt versus the minimum trade guess of 750 tmt, yet commitments are still running 8 mmt ahead of last year.  Field reports on the harvest are showing near record yields across the Midwest.  Funds were estimated to have sold 3,000 contracts yesterday. 

Soybean futures were driven higher on increased export demand and expectations of a bullish crop report today.  Weekly export sales exceeded expectations at 1.693 mmt with at least half destined for China, who booked another 120 tmt new crop soybeans yesterday.  Above released its estimates for Brazil’s soy crop and export program yesterday, pegging production at 101.3 mmt with 57 mmt expected to be exported.  Weather models are calling for increased rains in South America over the next 5-10 days.

Wheat futures moved lower yesterday despite strong export sales of 570.8 tmt.  Some market participants are speculating ahead of today’s report that wheat used for feeding over the last quarter could be shown to have increased by 50-60 million bushels.  Funds were credited with selling 3,000 contracts yesterday.


Corn opened 1-3 lower and Soybeans are a nickel higher ahead of this morning’s Quarterly Stocks report. 


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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