General Market News
· US unemployment rate hits 9-year low of 4.6% as economy adds 178,000 jobs in November
· November payrolls strong, may lead to rate hike https://goo.gl/z2diw2
· China’s central bank facing major new headache https://goo.gl/MbDvS7
· Ahead of promised cut, Russia’s oil output hits record high https://goo.gl/1tsEb4
· All-star Game no longer will determine home-field advantage in baseball’s World Series https://goo.gl/XxkgEx
INTL FCStone is pleased to announce that Nate Donnay has joined our dairy market analysis, research, and forecasting group. Nate has over a decade of dairy experience with Informa Economics forecasting global supply, demand and prices, and helping dairy companies make informed decisions. He will lead a global team of economists responsible for creating world-class dairy market research, analysis, and advisory services.
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
At the intersection of budget setting and panic, we get a day like Thursday for class III and cheese futures markets. Massive broad-based buying spanned into Q1 2018 as the demand yesterday was not necessarily for physical cheese or fluid milk – but rather futures contracts and risk management. Yesterday marked the sixth time in history in which the class III market traded over 4,000 contracts in a single day (the last time was January 30, 2015). Over 3,500 class III puts traded yesterday as well. Cheese futures traded over 900 contracts.
Where is the new demand coming from? Multiple sources likely, but we’ll touch on a few broad notions. We’ve been watching milk production declines in Europe, New Zealand, Australia, South America and Russia since late summer. While many in the US have largely discounted these shortfalls due to generally solid milk production and physical inventories in the US, the reality of a quick turn-around in global milk production in looking less promising. Buyers are taking notice.
The milk production declines are met with what we believe will be a material uptick in global dairy demand here recently (we’ll get the hard data over the next few months). Now there are certainly questions as to how sustainable new demand out of Asia will be, but for now the chatter points towards greater competition for available product.
Finally, there is some concern over US milk production as we roll into 2017. On-farm margins are looking really good for many after a day like yesterday, but many producers in Wisconsin and the North Eastern US will stop use of rBST in 2017. While we think Monsanto likely did more for the producers by teaching cow care and comfort than rBST ever did, taking large swaths of animals off rBST inside a six month period or so will likely bring about some aberrations in milk supply in places like Wisconsin. The jury is out on what this will mean, but the uncertainty around such a change doesn’t calm nerves of milk buyers.
Turning to spot, the session yesterday was rather uneventful. Blocks rose 2 cents – erasing Wednesday’s declines – while barrels fell another 1.5 cents widening the block/barrel spread to 16 cents. The fresh cheese market seems to have plenty of barrels at the moment. Block cheese may be harder to come by. Judging the disconnect between the rather lackluster spot call and bubbling futures buy side worry yesterday, we’d estimate that spot downside is limited now.
Theses futures markets have risen dramatically this week and while the futures trend is decidedly up, watch out for end of the week profit-taking or at least some trading consolidation as the market will inevitably try to catch its breath. For an example of what “catching breath” could look like, just take a glance at dry whey futures yesterday – rather quiet and mixed.
We look for Class III, Cheese and Dry Whey to open steady-firm.
Class IV, NFDM & Butter
Although there were major fireworks in the class III and cheese markets yesterday, a fire still smolders in the powder market. Yesterday the spot price of NFDM pushed to a new 2016 high of 99.00 cents as the futures continue to slowly pull on the spot price. It seems to us that fresh powder is tighter today than at any other time this year. The prices are reacting to that possibility as demand heats up for 2017 futures contracts. We’d expect a firm opening in line with the overnight action. The Dairy Market News Western Mostly NFDM price was up 2.00 cents from the previous week at 96.00 cents per pound. Last week’s CA Weighted Average price was 91.08 cents, down 1.63 cents from the previous week.
Butter futures are quiet this morning after yesterday’s two-sided trade. The expanded, ten cent daily range wasn’t necessary however futures did surge pre-spot only to give back some of the gains after sellers materialized and drove cash 3.75 cents lower to sub $2.20 levels. This morning’s board is showing bids and offers on either side of unchanged and based on yesterday’s action, there could be some stress cracks starting to show with a possible pullback warranted.
January to December class IV pack finished at $17.01 – 0.02/cwt below the class III pack average of $17.03 yesterday.
We look for NFDM to open firm, Butter and Class IV steady-mixed.
Corn futures slumped to the lowest levels in two months as the weekly export sales supported concerns relating to ample supplies. Adding to the bearish trade was Brazilian trade data for November highlighting their corn exports were just 961,000 MT, down from 1.10 million in November of last year. Funds sold an estimated 25,000 contracts throughout the day as contracts through the end of next year settled 4.75 to 6.00 cents lower.
Soybean contracts fell below technical support levels intraday before the strength of the soybean oil rally pulled the beans off their lows to end the day with minimal losses. The weekly export sales of soybeans reported yesterday reached the high end of trade expectations at 1.399 mmt, but were down 500 tmt from the week prior, with Chinese purchases responsible for a majority of the sales. Funds were credited with selling 3,000 soybean contracts, 5,000 meal while buying 8,000 bean oil.
Wheat futures posted the largest losses for the day with contracts falling 6.00 to 9.00 cents lower through the end of next year. Despite strong export sales last week expected export demand is projected to decline going forward as talk of the growing Australian wheat crop weighed on prices. Funds added 5,000 to their short position throughout the day.
Look for a firm opening for corn and soybeans.
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.