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Morning Dairy Comments, 11/22/2016

Tuesday, November 22, 2016


General Market News

· Cold Storage 2PM Central

· 6.9-magnitude earthquake strikes off Japan https://goo.gl/qWM4nu

· Oil touches three-week highs ahead of OPEC meeting

· DOW, S&P 500, Nasdaq all close at new record highs yesterday

· Beefed-up China deal hoped to benefit dairy farmers https://goo.gl/j4bWFi

· WSJ: Donald Trump Poised to Pressure Mexico on Trade http://on.wsj.com/2fUXMPD

SPECIAL NOTICE:

· On December 5, the order of spot market sessions is changing. 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

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.

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Class III & Cheese

Early strength in nearby Class III futures waned as the session wore on after blocks remained unchanged at $1.91 without so much as a whisper and barrels saw a single load change hands on a penny downtick, to $1.74—very different from the 21 loads that traded on last Friday’s spot session. The spread remains wide at 17 cents, which is keeping the market on edge and futures at a discount to the spot equivalent that now comes in near $17.70. For the time being, traders continue to take a “show me first” approach, not believing that the recent strength is sustainable and content to trail cash. The trade has digested the latest milk production numbers, which came in 2.5% higher from year ago levels and will get a look at the latest cold storage numbers this afternoon (see below for forecast), but market direction for now will be dictated by the block/barrel spread is corrected than anything else.

Although futures remain discounted to spot, fresh contract highs have been logged for December over the past couple of sessions with resistance encountered at yesterday’s high of $17.20. Only time will tell if that proves to be the top but with the fairly sharp, reversal lower leaving a bearish tail on the chart yesterday it raises the possibility.  The other technical indicator to consider would be the RSI, indicated by the blue line at the bottom of the chart below, which is showing major divergence as it failed to log fresh highs along with futures. That divergence can be indicative of market topping action. All that said, fresh blocks cheese remains tight today. While we’re seeing some cracks of failure in bullish technical indicators, the fundamentals are still king today.

December Class III~Daily

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USDA’s Cold Storage report for October, scheduled for release today at 2:00, CST, should move along seasonal trends where we expect cheese stocks to be higher versus last year’s level. Stocks of American and total cheese will be higher versus their five-year averages with American cheese stocks expected to lose 3.1% from last month, but rise 3.4% from 2015 levels while total cheese stocks are forecast to decrease 3.1% from previous-month levels, but expand 4.7% above year-earlier levels to 1,200.2 million pounds. October’s total cheese stocks have been lower than the previous month’s level in 10 of the past 10 years.

Cooperative Working Together (CWT) has accepted 11 requests for export assistance to sell 1.517 million pounds of Cheddar cheese and 1.091 million pounds of butter to customers in Asia, the Middle East and Oceania. The product has been contracted for delivery in the period from November 2016 through February 2017. 

We look for Class III, Cheese and Dry Whey to open mixed/firm.

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Class IV, NFDM & Butter

NFDM futures were pressured straight out of the gate this morning with sellers not letting up through the session despite the uptick on spot. There’s a couple of things at play here beginning with last week’s announcement that the EU will begin offering SMP out of intervention, a development likely to keep upside potential in check here at home but could offer some longer term support to the equation. Secondarily, the spot price has proven to have difficulty holding strength north of the $0.90 mark, which has rewarded sellers who have stepped in on numerous occasions and sold futures at technical resistance levels. Barring another explosive GDT auction or a pop on spot that would threaten the $1.00 mark, we would expect this trend to continue.

Butter futures opened the week on tepid footing with a bit of profit taking sending futures lower after a near month and a half bullish wave has taken them back to levels of resistance. The 2-cent downdraft in yesterday’s spot market only added to the weakness and a breach of the $2.00 mark could accelerate downside action moving forward, especially if seasonal demand begins to dry up. The trade will get a look at the latest cold storage numbers this afternoon where we expect October butter stocks to be 39.0% above 2015 inventories at 248.6 million pounds however, stocks are expected to be 7.7% lower compared to a month ago and have decreased in the September-October timeframe in 10 of the past 10 years.  Look for a firm opening to butter, slightly lower opening for NFDM and Class IV.

Grains

Grain markets saw strength to open the week as fund managers engaged in broad based buying on continued strong demand, acreage needs and a certain amount of weather premium as South America’s campaign gets underway. The pullback in the USD from 13-year highs also lent support as did upside action in crude oil, which surged more than 4% intraday on chatter that OPEC nations are getting closer to penning a deal to curb production.

Yesterday’s action saw soybeans advance over 25 cents as the nearby, January contract was finally able to muscle up through its 200-day moving average (black line on the chart below). It now faces resistance at its 150 day moving average (purple line), where it has repeatedly been set back. Look for a mixed/modestly lower opening for grains.

January Soybeans - Daily

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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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