Morning Dairy Comments, 11/30/2016

Wednesday, November 30, 2016

General Market News

· Crude oil surges higher on OPEC deal hopes

· China liquidity fears trigger exodus in commodity markets

· California targets dairy cows to combat global warming

· Westland milk suppliers consider options


· 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

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

Class III contracts managed to withstand the downdraft of the spot cheese session, holding on to modest gains throughout the 2017 months, thanks to supportive trading action in the whey market.  The 2017 contracts settled unchanged to 11 cents higher as just over 1,200 contracts traded.   The strength of the futures was notable as yesterday the USDA released a portion of its Long Term Projection report which presented a rather dampening picture for those looking for a strong price recovery next year.

According to the report the U.S. cow herd is projected to increase next year by 40,000 head to 9.37 million with milk per cow set to increase by 465 lbs. per head for the year to 23,160.  This would put the annual milk production at 217.0 billion pounds, an increase of 4.5 billion over this year.  Commercial exports, on a milkfat basis, were projected to increase by 200 mln pounds while imports were pegged to fall by 100 mln from last year.  Taking these factors into account the USDA is projecting the 2017 All-Milk price to average just $16.75/cwt. with the cheese price averaging $1.66 and dry whey averaging $0.37/lb. 


clip_image008Trading activity in the cheese market was contained to contracts extending out to July, with minimal losses in the remaining 2016 months while the January through July months settled unchanged to 0.7 cents higher.  Trading volume was light relative to the Class III market as just 341 contracts changed hands as sellers muscled both the Blocks and Barrels lower during the spot session.  The emergence of Blocks, trading the highest number of loads since September 29th, has given the market bulls pause as both the first quarter and first half pack averages have filled the gaps on their respective daily charts, as seen below.  If today’s trading session fails to mount a rally through the resistance levels instilled by the upper end of these gaps these cheese packs will seek to consolidate back near support levels derived from their respective 100-day moving averages. 

Dry whey futures were well supported in the November through March contracts, trading 0.1000 to 0.5000 cents higher, while the remaining April through December contracts settled mostly unchanged.  A total of 105 contracts traded through the October 2017 contract, and while many of the nearby months settled just off their intra-day highs, hedging interests over the past couple trading sessions seem intent on establishing coverage,  The performance of these dry whey contracts provided a measure of support to the Class III market, helping to offset the declines in the spot cheese prices which has now lowered the spot equivalent Class III price to near parity with the December 2016 contract. 

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



Class IV, NFDM & Butter

NFDM futures caught a bid in 2017, with the over 200 trades on the day leading to contracts increasing in value by between 0.250 and 2.100 cents.  Even though the trading that had taken place during the spot session left the price unchanged hedging interests continue to seek coverage while driving prices into or near contract highs for the month.  The rally continues despite talk of Europe moving SMP out of storage and into the marketplace.  While the potential movement of product in Europe is anything but a foregone conclusion, the possibility of additional powder entering an already congested market could limit the extent of the current rally.  The USDA Long Term Projection report from yesterday projected the 2017 butter price to average $1.87 while the NFDM price was slotted at 97.00 cents.

The CWAP for the week ending November 25th posted with a week over week decline of 1.63 cents at 91.08.  Weekly sales were estimated to have fallen 23.5% from the week prior to 5,646,530 pounds. 

Butter futures moved mostly higher yesterday, with the Dec16 contract posting the lone decline on the day, to settle between down 0.800 cents and up 2.175.  The strongest gains were noted in the July through November 2017 time frame as buy side hedging interests continue to support the current bullish trend while seeking to add coverage after having held back over the previous couple months.

We look for a higher open this morning for NFDM, butter and class IV.


Corn futures plunged lower yesterday as funds were projected to have sold up to 25,000 contracts.  With the December contract entering First Notice Day today, many of those long in the contract scrambled to close out or roll their positions into future contract months exasperating the selling pressures.  Amid the corn market turmoil, the USDA released a portion of their Long Term Projection report (refer to table below) which highlights an estimated 4.5 mln acres switching away from corn to other crops.  In addition to the shift in acreage the USDA has called for a yield of 170.8 bpa next year which translates into a 14.06 bln bushel crop.  With demand decreased for next year the carryout is estimated to reach 2.3 bln bushels with the price received by producers pegged at $3.30. 

Soybean values tumbled lower as technical resistance coupled with the lack of fundamentally supportive news led to profit taking after the recent run higher.  Looking back to the USDA’s Long Term Projection report, soybean acreage was estimated to increase by 1.8 mln acres next year while dropping the expected yield to 47.9 bpa.  The adjustments to supply and demand factors led to an expected carryout of 395 mln bushels and a price of $9.35. 

Wheat prices fell in kind as the March 2017 contract reached a new record low as funds piled on the selling efforts on bearish news relating to exports.  Russian exporters undercut U.S. pricing for sales into Egypt as U.S. prices remain above those of FSU wheat.  The USDA calculated the carryout for wheat next year to reach just under one billion bushels with both supply and demand figures dropping lower year over year. 


Grains should open higher this morning. 


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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