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Morning Dairy Comments

Monday, December 5, 2016


General Market News

· Renzi quits as Italy referendum defeat deepens Europe’s turmoil https://goo.gl/HyXWI3

· UK Supreme Court begins hearing Brexit appeal

· Oil tops $55 for the first time in 16 months as OPEC deal fuels buying

· Dakota Pipeline project denied federal permits as tribal protestors win the day https://goo.gl/VA2zGl

· California targets dairy cows to combat global warming https://goo.gl/KaF3K5

· Exxon CEO emerges as contender for Donald Trump’s secretary of state

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.

NOTICE: The CME is delaying the transition of the CME Dairy Spot Call to the electronic platform from Monday, December 5, 2016 to a Monday, January 9, 2017.  The delay will ensure a seamless transition for our customers beginning with Nonfat Dry Milk on January 9. As a result, the Dairy Spot Call will continue with the existing open outcry trading hours as follows (normal times):

· Cheese (Barrels and Blocks) 10:45 AM to 10:55 AM CST

· Nonfat Dry Milk 10:55 AM to 11:00 AM CST

· Butter 11:05 AM to 11:15 AM CST

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Class III & Cheese

What a week for Class III and cheese futures. A bullish wave swept over the entire complex across on heavy volume as hedgers sought to get coverage on the books. The only time in history when the class III market traded two 4,000+ contract days back-to-back was January 24th and 25th 2011 – when the market was caught off guard by bullish global market fundamentals that spurred a $3-$4 rally during Q1 2011.
The action last week seemed less a function of spot pricing and more about a sense of urgency in setting budgets and implementing risk management strategies in a rising market. With volatility coming out of the December contract, January has taken the lead role and logged a whopping $1.20 range last week, which left bullish momentum intact despite the sharp downdraft on Friday afternoon that saw a close 34 cents off the high, at $16.96. That left a nasty looking tail (topping indicator) on the charts (see below) but the fact of the matter is that a bit of corrective trade would be healthy for the larger trend and a bit more consolidation is probably in order from here.

There is the possibility that we just put in a short-term top. But global milk production continues to contract with the US really the only major player to continue to expand on year ago levels. And domestic demand remains solid as well and with Asia back in the market in a bigger way, leaving little margin for error. That doesn’t necessarily equate to an $18 plus handle on Class III futures, but it likely raises the floor until further notice.  

Block cheese prices were down 5 cents on the week, to close at $1.8100/lb., in a market that saw 11 loads change hands, while barrels ended the week 7.50 cents lower at $1.6150/lb., with 25 loads traded. The block price ended the month at $1.7600/lb., down 1 cent from the ending price last month. Trading activity at 26 loads was up 10 loads from last month and 1 load more than in 2015.  Trading activity in barrels registered at 108 loads and was 30 loads higher than last month, up 9 loads from last year. Traded prices ranged between $1.6375/lb. and $1.8675/lb. Cheese holdings in selected storage centers as of November 28 were up 0.9% from the previous week, at 79.1 million pounds, but 16.9% lower than year-earlier stocks.
January Class III Daily Chart

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Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

0

$1.8100

UP 3

1

0

 

BARRELS

6

$1.6150

DOWN ½  

1

1

NFDM

GRADE A

6

$1.0075

UP 1 ¾

1

2

BUTTER

GRADE AA

5

$2.1850

DOWN ¾ 

1

1

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Class IV, NFDM & Butter

The spot butter price settled the week at $2.1850, up 13.75 cents from last Wednesday, which has the futures market on its toes. Solid, two-sided trade has occurred over the past few sessions suggesting that a temporary sense of fair value has been found. One thing is for sure and that’s traded volume is on the rise with activity over the past month at 95 loads, which is up 94 loads from last month and 36 loads more than in 2015 between a range of $1.8600 and $2.2300. Holiday demand continues to keep a floor under the market and with Class II still pulling on cream, price action should remain supported for a bit.  

Butter holdings in selected storage centers as reported by Dairy Market News were down 10.9% from the previous week, at 11.7 million pounds but are 48.1% above 2015. Dairy Market News reports that the 82% butter price for November 14 – 25 in Western and Eastern Europe was $2.1319/lb., up 2.27 cents from the previous period. Oceania’s price was $1.8654/lb., up 0.57 cents from the previous period.

The NFDM price was up 10.25 cents to finish the first week of December at $1.0075 per pound, with 20 trades this week in what should have featured the last open outcry spot call for NFDM. That is all on hold for now as CME looks to ensure a smooth transition next month. Back to price action, Grade A is 22 cents higher than last year with November’s monthly average price at 89.14 cents per pound. That’s 10.92 cents above 2015 and 0.62 cents higher than last month and for the first time since October 2015, there’s a $1 handle on it.

We look for a mixed opening for NFDM, Butter and Class IV.

Grains

Grains traded mixed to mostly higher to finish last week - led to the upside by a dead-cat bounce in wheat, which posted close to a dime gain after flirting with contract lows. This offered sympathy support to corn, which closed a nickel in the green but had little effect on the bean market, which finished mixed as bear spreading took nearby contracts a couple cents lower and supported deferred months.
Crude oil remains on bullish turf and finished Friday up 1% intraday, north of $51.50/barrel, which is supportive overall to commodities. So long as this dynamic remains intact, expect grain price weakness to be met by bargain hunters. The trick for now will be whether or not beans are able to hold initial support levels where they finished on Friday as demonstrated on the chart below. The January contact has been pressured since Tuesday and closed right at its 10-day moving average (yellow line) on Friday.

January Soybeans Daily Chart

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Look for Corn to open 1-2 higher and Soybeans 10-13 higher.


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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