Morning Dairy Comments, 10/17/2016

Monday, October 17, 2016

General Market News

· Amazon adding 120,000 workers to meet holiday demand

· PepsiCo sets goal to reduce sugar and saturated fat in its products by 2025

· U.S. Steel shares could rise 50% in a year

· EU Ministers mull Syria sanctions to stop Aleppo strikes

· Regulator encourages more transparency for Fonterra’s off –GDT sales



Class III, Cheese & Whey

The spot cheese market finished last week with blocks bid up 3.25 cents to $1.55 with no offers, and barrels bid up 1.25 to $1.46 on 2 trades. Regardless the Class III and cheese futures trading had mixed results with modest weakness up front and firmness in the deferred contracts.

The bears continue to debate good milk production in the Midwest and Eastern regions, along with Canadian import restrictions of MPCs. The Restaurant Performance Index showed a contraction (below 100 on chart) for the 1st time in 8 months with softer sales and customer traffic. The bulls continue to say retail and foodservice buyers will continue to find value in cheese in the $1.50’s where they can continue promotional activities confidently.


The chart below shows the historical block cheese prices and we have seen good levels of support in the $1.50 range. These cheese prices will incentive a pizza craving S. Korea and Japan to give US suppliers the nod for mozzarella export orders especially with cheddar in the EU going for €3,400/mt or $1.70/lb. One issue though is the US$ has moved from 95 to 98 in a very quick fashion.

Plenty of fresh info will be hitting the markets this week: The GDT is out tomorrow, US milk production out on Thursday at 2pm CT, and Cold Storage out on Friday at 2pm CT. In addition, many international dairy market participants, including several from INTL FCStone, will be attending the SIAL food show in Paris this week.


We look for Class III, Cheese and dry whey to open mixed. 


Class IV, NFDM & Butter

The spot NFDM market was unchanged on Friday at 87 cents/lb or $1,920/mt. Overall, the sentiment in the NFDM market is mixed. Processors are holding on to product confidently as the market is in balance. However, end users are not concerned enough to chase the market higher as they are thought to have good coverage for their short to medium term needs. Milk suppliers are tighter in the Southern Hemisphere with weather issues affecting Kiwi, Aussie, and Argie production. The Northern Hemisphere sees moderately lower milk production in the EU (although to put in context milk is still up about 2% on the 3yr avg in the post quota world). The US milk production outlook continues to look promising as we were up 1.7% in Aug. US production will continue at a good clip with very cheap rations and hence lower break evens. We will release our updated global milk production report later this week.

The spot butter market was up 1.50 cents to $1.7850 on Friday with 1 trade. The butter futures were modestly firmer throughout 2017 with the exception of the front months. The general consensus is that butter in the $1.70’s will incentive holiday demand as buyers will find value here after a long period above the psychological $2.00 mark. Last year many holiday demand buyers were burned as the market corrected lower before rallying back to the $2.90’s. Canada was out recently with a 3,000mt butter tender. The US is competitive at these prices and Canadian buyers are also interested in importing US cream as well. Middle East and N. Africa buyers are also getting quotes from the US. The sudden competiveness in the export market should not be relied upon itself to support the market, but at the least fat imports will be slowing down.  

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



Speculative fund buying was a key feature for corn on Friday. Out of the gate funds added 15-20k longs before trimming back some of the position ahead of Friday’s close. There is an uptick in moderate farmer selling into the recent price strength. Buyers got after soybeans as well Friday. Soybean exports were strong last week - exports of 1.417MMT (China credited for 0.796MMT) - and while that is normally “priced in” once we get those export sales numbers; buyers are becoming more aggressive in soybeans and bean oil in particular. Vegoil supplies remain tight. Another aspect to consider is that November soybean option expire this coming Friday, October 21. The largest concentration of “open” options in Nov soybeans is at the $10.00 level. Look for a run to $10.00 on soybeans.

This morning’s 11am CT September NOPA soybean crush is expected to come in at 127.7 million bushels, down from 131.8 mbu in August but above 126.7 mbu last September and the largest September crush figure since 2007. Trade estimates range from 123.0-131.5 million bushels. Look for a firm opening to grains today.

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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