Morning Dairy Comments, 11/21/2016

Monday, November 21, 2016

General Market News

· Rabobank: World Dairy Trade Faces Strong Headwinds

· Tyson Foods names new CEO

· Obama may solidify Iran nuke deal before leaving office

· Falling dairy prices squeeze local dairy farmers


1) CME Spot registration must be completed today in order to ensure platform access on launch day, December 5, 2016.

2) On December 5, the order of spot market sessions is trading. Because spot NFDM will trade electronically, the order is amended as follows:

CHEESE:          10:45-10:55 AM

BUTTER:          11:00-11:10 AM

NFDM:             11:30-11:40 AM

Please note, this is the first phase of changes. There will be other time changes to the spot sessions once butter is listed on the electronic platform, and then again when cheese is listed – both of which will happen sometime in Q1 of 2017. Please call or e-mail with any questions whatsoever.



Class III & Cheese

Strong volume and upward momentum marked the end of futures trading last week. Buy side inspiration stemmed from a stunning spot market trade in which barrel cheese traded 21 loads to finish 8.25 cents higher at $1.7500. Blocks also moved higher – up 1.25 cents to finish the week at $1.91. Tightness is the block market is making waves for the barrel side of the equation as the market works towards adjusting the mammoth spread of the past few weeks. The reality of the situation is that holiday demand is coinciding with what appears to be a legitimate shortage of block cheese – and it does not seem to be over yet.

On the other side of the coin, US milk production hummed right along in October (See details below). We called the report bearish as U.S. milk production rose 2.5 percent (2.7 percent 23-state) in October, which exceeded our somewhat bearish expectations of a 2.3 percent increase. The key futures market takeaway for now, however, has less to do with U.S. milk production last month and more to do with spot market activity and worries developing around global milk production contraction. These are the issues driving the futures market today – and right now it looks like that direction is higher still.

Milk Production Recap

Despite milk production easily beating expectations last month’s production number was revised slightly lower by 6 million pounds, this came as a result of lowering cow numbers once again, by 1,000 head. This month cow numbers came in at 8.669 million actually lower than our expectations for 8.675 million. Without a doubt favorable weather across much of the US has helped to push out milk per cow levels to some very loft numbers. This month milk per cow was 1,903, above our expectation for 1,898 and up a massive 2.3% year over year. Milk production is lower in the other main production areas and that has led to price strength there and given that weather has been so ideal in the US, any turn in conditions could lower our milk production from current lofty levels and cause an even larger milk decline globally.

23 state milk production was up 2.7% vs. our expectation for up 2.5%, total milk cows lagged our expectation coming in at 8.669 million head as milk per cow more than made up the difference here as well. The state by state breakdown is very interesting as only 3 states showed lower year over year milk production, Utah, -5.5%, Florida, -3.3% and Virginia, -2.1%. In all 3 states lower milk cows is to blame for the lower production levels. Only 3 states showed a year over year decline in milk per cow, South Dakota, Arizona and Colorado but each of those states increased total milk production due to their increased cow numbers. The states with the largest gains year over year in milk production were, Texas, +8.22%, Kansas, +7.66%, Michigan, +4.9%, New York, +7.4% and Idaho, +4.0%. California milk production was up 1.8% and Wisconsin was up 2.2%.


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


Class IV, NFDM & Butter

A heavy 544 NFDM contracts traded Friday in what was mostly a lower day for powder. Fresh powder continues to make its way to the CME spot call as 5 loads traded between 88 and 90 cents, but there’s demand. This is a 90-cent market right now and it may move higher sooner rather than later. The forward curve remains lofty compared to many expectations, but significant downside appears limited. We look for a mixed, mostly lower opening.

Butter closed last week on a firm note as the futures market forward curve is pushing ahead of the spot market. Spot stayed steady at $2.03 Friday, but there was an unfilled bid on the board. We expect that the market is more appropriately priced in the low-$2.00 range for now as holiday demand is expected to wane modestly as we roll into December. For now, we look for a mixed trade to begin the shortened holiday week for butter.


The grain complex got a firm start to this shortened holiday week. The spark to the upside was caused in part by Friday’s CFTC report, which showed managed money traders sold a significant amount of corn and bean contracts last week. For example, managed money sold 60,800 corn contracts on the week (expectations were for a drop of 16,000 in long positions). Essentially the strength in the markets for now is driven by money “getting back in”. Also crude oil is over a dollar higher this morning as the U.S. dollar is edging lower after putting in 13-year highs last week. Look for a firm opening to the grain complex.

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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