Morning Dairy Comments, 10/25/2016

Tuesday, October 25, 2016

“Everything takes time. Bees have to move very fast to stay still.”  -David Foster Wallace

General Market News

· Dairy Farmers not leaving the industry at the numbers that had been expected.

· Gold steadies as dollar’s advance pauses at 8-month high.

· In California’s Methane-Reduction Crosshairs

· Firm Dollar pressure the Euro



Class III & Cheese

Class III futures briefly traded higher yesterday before sell side pressure weighed in on the market leading up to the spot session; sending the Oct 16 to Apr 17 contracts 3-10 cents lower. Futures volume for Class III and Cheese was uninspiring as fresh news was hard to come by. The lack of price action plays to the belief that high inventories have already been built into the market.  

A main justification to be bullish in the domestic dairy market is the rally witnessed internationally. Not often given its time in the spotlight is the magnitude to which currency fluctuations can null or multiply price moves in other markets. This has been the case for the USD/EUR, which has seen the USD gain 5% on the Euro since the beginning of Oct. SMP power during that same time has increased 5%. Butter has larger gains at 10%, while cheddar has been flat. The case can still be made that international pricing should support domestic butter. However, NFDM and Cheese cannot be afforded the same privilege. In fact, the U.S. is still the most expensive cheddar price in the world. The latest EU cheddar price adjusted for currency and volume variation stands at $1.54/lb. Last week’s GDT auction posted a lead month cheddar price at $1.5717/lb. Yesterday Blocks settled at $1.64/lb. and barrels closed at $1.56/lb.

This is not meant to undercut the EU cheddar rally. Prices have increased 20% since July, but have been steady the previous 5 weeks. When adjusting for the currency however that cheese has decreased in value since the beginning of Oct. In Oceana, the largest gains on GDT were from Aug to mid Sep. Since then the previous two events have ended with lower cheddar pricing. Also, take into account that 4 out of the last 5 years spot cheese pricing has trending lower from now until the end of the year. It is difficult to say domestic cheese will return to the 1.20s, but the trend at least for now does not seem to be higher internationally or domestically.

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



Class IV, NFDM & Butter

Butter futures found support from a spot market that saw 1 trade and 2 unfilled bids yesterday. Bringing the cash price up 2 cents to $1.78/lb. Friday’s cold storage report was thought of to be bullish, as the inventory draw down was larger than expected month over month. However, to start the day futures were quiet. The bid/ask spread hinted at a move higher but confirmation from the spot market was needed for trading activity to transpire. The move higher on spot did not shock futures higher as it has many times in the past. Instead, volume was light at under 100 contracts and trading was kept to within 4 contract months. Additional moves higher on spot is needed to warrant a rally in futures.   

NFDM futures settled lower yesterday as did spot which closed 1/4 cent lower to $0.8775 on 1 offer. The seasonal rally in NFDM futures is over and in the absence of fresh news; this market may become range bound. As has been the case for well over a year, the forward curve looks to be a good opportunity to sell in order to lock in margin.

CWT accepted 873,031 lbs. of cheese and 136,687 lbs. of butter into its assistance program this week. The delivery period is from Oct 16 to Jan 17.   

We look for butter and NFDM to open steady to higher, Class IV steady.


Upside momentum has been slowing for corn futures the last serval trading days. This trend continued yesterday with futures down around 4 cents. 61% of the corn in the nation has been harvested, above estimates of 60%, but below last year at 70% and the 5-year average of 62%. Beans saw double digit gains on the day, as seasonally high exports continue to the support the market. Soybean harvest came in at 76% complete, just under the trade estimates of 77%, in line with the 5 year average, but below last year at 84%. Funds were thought of to be sellers of 8,000 corn contracts and buyers of 13,000 bean contracts. Managed money has lightened up their short position by over 100,000 contracts since the start of Oct.

We look for corn and wheat to open lower, soybeans to trade 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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