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Morning Dairy Comments, 11/16/2016

Wednesday, November 16, 2016


General Market News

· October retail sales outstanding, consumer spending continues to improve https://goo.gl/ZR5rQy

· Crude Oil settles up 5.8% at $45.81 yesterday – biggest gain in seven months

· Dairy industry frustrated, wanting change with MPP https://goo.gl/mlUpZ1

· A likely beneficiary of Trump’s tough talk on trade: China https://goo.gl/xm0RR5

· It worked with Oreos, but can it work with Big Macs? https://goo.gl/QMhRv8

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Class III & Cheese

Yesterday seemed to be a day of building a little more risk premium into the class III and cheese markets. GDT was firm, but outside of that there seems to be more questions than answers for the time-being. US holiday demand remains strong, but so too does the US dollar. Global production is contracting, but the US is humming right along with excellent November weather. The US dairy industry is watching exports firm over the past few months, but questions abound as to the future of trade deals with Mr. Trump in the White House. The futures prices are a discount to spot, but barrel cheese is making its way to the exchange – the last time this happened the price of blocks acquiesced.

Currently the block/barrel cheese spread sits at 18.25 cents, something not seen since October 27th, 2014 when the spread sat at 21.75 cents. There is a belief that blocks ought to move lower to close that spread. Holiday demand is still strong, however, and the longer blocks remain airborne – the more likely the scenario that barrels catch a bid and move higher in our estimation. Questions will likely swirl about the sustainability of such a move this time of year, but we’ll cross that bridge if we come to it.

GDT results yesterday saw an increase of 4.5% over the previous event. All categories were higher. BMP and Cheddar saw the largest increases however; SMP saw an increase of 9.8% with WMP up 3.2% (SMP is working to close the spread with WMP. That spread is closer to $800/mt vs a more normal $150-$200/mt).
The main takeaway to us is that the price strength continues. Up until yesterday’s GDT event, there seemed to be a healthy dose of doubt around GDT index strength. Last year the index was strong thru October and then started a precipitous fall into Q1. Contracting global milk production is likely one culprit, but the main point is that this is not last year. Global prices are strong and are poised to get stronger thru Q4.

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(Source: GDT)
We look for Class III, Cheese and Dry Whey to open steady/higher.

 

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Class IV, NFDM  & Butter

Butter markets were mainly weaker yesterday, although we’re hearing cream supplies are beginning to tighten this week due to holiday demand. That ought to keep a bid under the butter market for the time-being. We thought we’d list a few bullish and bearish arguments that can be made….

Bullish:                                                                                                               

· Interest healthy at $2.00 level

· Seasonal Demand

· Global prices remain strong

· Draw down in stocks (MOM)-15.56%

Bearish:

· Inventory levels appear adequate

· Spot unable to eclipse $2.00

· Demand is expected to wane after Thanksgiving.

· US milk production continues to be strong

Class IV futures got a nice bounce yesterday with June up as much as 38 cents likely buoyed by strength in NFDM. Since its recent October lows, the Q1 NFDFM pack has gained nearly 5.5 cents to settle slightly above 1.0450. The market continues to weigh firming global powder prices with a US forward curve that seems unreasonably lofty. For most of this year the spot market whipped the futures market around and eventually pulled down nearby contract prices. We may be at a turning point now where the spot market is pulled higher by futures. This has yet to be determined for sure, but it’s our estimation of the current market. We think fresh powder is going to end up tighter in the coming weeks and months and that can mean the spot market below 90 cents is on borrowed time.

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

Grains

The grain complex saw positive numbers across the board yesterday with March corn up 4 cents and March beans up 5 ½ cents. The stronger dollar seems to be in play, however, export sales seem to have supported the market with evidence that Chinese demand is still very present. Export sales of beans totaled 121.5 MT for delivery to China.
According to our grain research folks, “The massive October soybean crush figure (at 164.6 million bushels, an Oct record by 5.7 mbu over last year’s previous high) puts the two-month early NOPA cumulative crush tally at 294.0 mln bu, up over 8 million from last year’s Sept-Oct pace. That’s good for a +3% year-to-year increase so far, after the USDA cut their entire-year total bean crush estimate this month—down 20 mbu, to 1930 mbu—which would indicate a YTY rise of only slightly over 2%...”

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We look for a modestly higher opening across the board in grains today.

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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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