Morning Dairy Comments, 10/27/2016

Thursday, October 27, 2016

General Market News

· Murray Goulburn lifts milk prices days after cutting its forecasts

· Fonterra announces reduction in offered volumes over next 12 months, 10,199 MT decrease in WMP, 1,000 MT decrease in AMF

· OPEC may need help to end the global glut of oil

· Gold gains as the Dollar cools its advance



Class III & Cheese

Class III and cheese futures submitted a rather benign performance yesterday with rather tame price action as a result of the divergent price action of the spot market.  The Block/Barrel spread widened by two cents as the Blocks pulled further ahead of the Barrels to now hold a differential of 9.75 cents. 

Class III trading activity approached 1,000 contracts for the session, yet over 60% of the total trading volume was limited to the fourth quarter contracts.  Trading activity in the cheese market was more evenly distributed, though neither market seems willing to commit to a directional trend.  Over the last six trading sessions the January to June Class III pack average has tiptoed along within a 15 cent trading range while the first half cheese pack has remained within a range of just a penny.   

In order for the Class III and cheese markets to break free of their recent complacency an assertive shift in the spot cheese values is needed.  Without this shift both markets seem destined to glide along in a sideways pattern, lacking any meaningful departure from these current price points.  With that said, the fact that we are swiftly approaching the holidays amidst market conditions that of late have failed to acknowledge the historical seasonality of this time of year leads us to believe that the complacency in regards to prices should and will meet an abrupt end in the near term.

Weekly cheese stocks held within selected storage center for the week ending Oct. 24th were reported at 82.592 million pounds down 2.5% from the week prior while down 18.9% from the same week last year.  The 82.592 figure is the lowest volume reported since the week of April 14th 2014. 

The NDPSR released yesterday for the week ending Oct. 22nd revealed a Block price of $1.5644, down 1.13 cents from the week prior while weekly sales were projected to have declined by 6.8% to 12,866,698 pounds.  The Barrel price was announced at $1.5250, down 1.90 cents, with sales estimated to have decreased by 5.8% to 10,393,863 pounds.  The Dry whey price increased by 1.71 cents to 34.28 cents while weekly sales dipped 9.7% lower to 5,593,247 pounds.     

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



Class IV, NFDM & Butter

The butter market was the belle of the ball within the Class IV complex, surging higher after the 5.5 cent gain tallied during the spot session bringing the two-day spike in price to 10.5 cents.  The gains in the futures contracts spanned between 0.975 to 4.725 cents through December 2017 while the trading activity was focused within the nearby contracts.  The November through January contracts accounted for roughly 63% of the total trading volume for the day as just over 100 contracts traded hands in these three months. 

So why has butter suddenly and violently transitioned from the tepid, subdued market of late to one of explosive strength?  There are theories/rumors/whispers being passed around concerning imminent exports of U.S. product to this destination or that, holiday demand hedging or frantic short covering being attributed to varying degrees to this two-day rally.  At the end of the day some of all of these factors have contributed to a varying degree to what has transpired, but as butter prices abroad are building a premium over domestic values, European butter was priced at $1.9929/lb. for the week ending Oct. 23rd, and given the time of year a rally in the butter market seems logical.  How much higher can butter prices go?  Well if the historical performance of this market has taught us anything it is that one should never underestimate the exuberance and exaggeration of a price move.  A move to at least $1.900 should be a simple task, but as prices near the $2.00 mark expect sellers to step in and thwart any aspirations of a sustained surge. 

NFDM price volatility was tranquil compared to that of the butter market as the futures through the end of next year settled between unchanged and 0.850 cents lower with nearly 300 contracts trading.  Nearly two thirds of the trading activity was concentrated in the October to December 2016 contracts with some market participants playing the carry trade.  With the modest decline reported in the NDPSR report today should see the futures to start the day with a modest bearish tilt before ultimately yielding to the performance of the spot session to determine price movements into the end of the trading day. 

Weekly butter stocks held in selected storage centers were reported yesterday at 19.951 million pounds for the week ending Oct. 24th, down 5.3% from the week prior while currently residing at a level 51.5% higher than during the same week last year. 

The NDPSR for the week ending Oct. 22nd for butter was reported at $1.8405, down 1.10 cents from the week prior while the weekly sales were estimated to have fallen by 57.8% to 2,869,450 pounds.  The NFDM price was reported to have slipped 0.24 cents lower to 91.93 cents while the weekly sales fell 20.6% lower to 11,975,791 pounds. 

We look for butter to start higher, NFDM mixed and the Class IV steady. 


The grain complex was led higher by the soybean complex as rumors of Chinese cargo bookings, strengthening global oilseed markets and the breaching of technical resistance gave way to gains across all the grain markets except the bean oil.  Soybean futures registered gains of between 10.25 to 19.25 cents within the Nov16 to Nov17 contracts with the greatest strength seen in the nearby contracts.  Heading into the open of yesterday’s trading session Chinese soy futures had tallied a 28 cent gain while the Palm oil futures jumped higher to ignite the bullish trading action of the day as rumors of China purchasing product from the U.S. and South America swirled around the markets.  South American weather over the past two weeks has allowed for accelerated planting of soybeans in Brazil leading to some to project crop production to reach 102.8 mmt, 0.8 mmt higher than the most recent USDA projection.  Funds were estimated to have bought 15,000 soybean and 7,000 meal contracts during the session. 

Corn futures rallied in sympathy to the strength of the soybeans, yet was limited in its ascent by the 100-day moving average which is proving to be a formidable technical resistance level.  While the U.S. currently remains the most attractively priced market for exports ethanol production has declined in the last week while ethanol stocks posted a huge increase of 877,000 barrels as Chinese ethanol margins are high enough to dampen demand for imports. Funds were estimated to have bought 8,000 contracts on the day.

Wheat futures were swept up in the bullish exuberance of the day while U.S. plantings are moving along at a normal pace without any noteworthy weather concerns foreseen in the near term.  Russia is projected a 500,000 hectare increase in winter wheat plantings for this year while Canada will see light rains over the next few days working to hinder the last of the spring wheat harvest.  U.S. wheat values are reaching levels that will diminish export demand now as funds were estimated to have bought back 5,000 of their 108,000 contracts they are short.

We look for the grain complex to start the day 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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