Morning Dairy Comments, 10/10/2016

Monday, October 10, 2016

General Market News

· Stronger dairy prices could last into 2017 – report

· China’s services sector created jobs at fast pace in 7 months

· Oil approaches one year high as speculators buy into output cut deal

· Missiles fired toward U.S. warship near Yemen

· Ugliest debate ever



Class III, Cheese & Whey

Class III and cheese futures market is rather mixed lately but underpinned by both a firming spot cheese market and firming dry whey futures on Friday. Nevertheless, milk futures are still trading at a healthy premium to spot equivalents and as such they appear to have limited upside at the moment. The question is, do we see enough buying (holiday or otherwise inspired) to make a material shift in spot pricing this week? The answer is not clear yet this morning, but we expect that the path of least resistance is shifting back to the upside for cheese now.

Last week the U.S. Dairy Export Council (using USDA/FAS data) announced, “U.S. dairy exports topped $402 million in August, up 3 percent from last August, and the first year-over-year increase in more than two years.” Interestingly, Cheese export declines to key trading partners of Mexico, Japan and South Korea were offset by U.S. sales to Middle East, Central America and Southeast Asia. At the risk of sounding like a broken record, we remain bullish of the U.S. prospects to export both powder and cheese now and going forward and the latest numbers – although dated - are a testament to that sentiment.

Source: US Dairy Export Council

Dry whey futures recovered some of the recent losses last week, but remain below recent highs established back in September. The midpoint Central dry whey mostly price was up 0.25 cents from the previous week, at 31.25 cents and 11.25 cents higher than the comparable period in 2015. The midpoint Western dry whey mostly price was 33.50 cents per pound, 0.87 cents higher than the previous week. Dry whey prices and Europe are still firming, so we don’t see a tremendous amount of downside for U.S. whey at the moment. We expect a more mixed trade for today.

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


Class IV, NFDM & Butter

Spot butter stabilized Friday settling up 2.00 cents to $1.85 giving the futures a nice boost to close out the week. Good volumes traded, too, with 236 butter contracts changing hands Friday. We don’t think this is a bottom yet, but rather a modest corrective move in a market that still has some downside potential.
To give $1.85 some perspective this morning, that price is $0.5675 lower than the same week in 2015. September’s monthly average butter price at the CME was $1.9950/lb. That price average is 67.40 cents per pound below 2015 and 18.26 cents lower than last month.
While butter was up, NFDM turned lower and did so with increased volumes. 467 NFDM futures traded Friday and open interest rose by 236 contracts as prices fell thru the middle of 2017. Volumes were fairly well balanced thru Q1, with aggressive sales being met with end-user type buy side interest. End-users remain rather uncovered for 2017, but we’re seeing that start to change for Q1 and first half time-frames.
With NFDM exports in August reportedly 80% higher than August 2015, we got a few questions Friday about how and why NFDM futures were falling amid really solid export news.
For starters, the export news is old. It’s from August. It’s now October. Looking and following export numbers is critically important to gaining understanding of market tenor and tempo, but looking back to trade futures markets is a gamble. Secondly, the futures market is trying to account for expectations and anecdotal information. So we may be seeing some fresh sales against physical ownership. We may be seeing a lull in export activity work its way into our NFDM market. What we’re not seeing is someone placing a trade today based on 45-60 day old data. We watch for trends from historical data, but not intra-day or intra-week trading activity.

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


Today is Columbus Day and a bank holiday and as such the grain markets are rather quiet and mixed to begin a new week. Last week saw a decline in corn values as the short-covering rally over much of last week ended abruptly on Friday. Nevertheless, the corn market remains above key levels of support and may again make advances to the upside as the technical indicators are weighing in more bullish than bearish now. The trade is expecting harvest to be 41-44% complete as of yesterday. The USDA will release September’s Crop Production and Supply/Demand report on Wednesday of this week. End-users are still encouraged to gain new crop coverage if they have not done so.

Soybeans are poised to open weaker this morning but remain largely sideways. We’re watching for a breakout one way or the other, but remain resolute in our recommendation to end-users that need to cover some protein needs for 2017. The ‘green’ circle in the chart below is an area of support that may not break lower. This is a good area to have some ownership.

July Soybean Meal Weekly Chart


We look for Corn to open 1-2 lower, Wheat 2-3 lower and Soybeans 1-2 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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