General Market News
· Crude oil dips as OPEC, Russian output rises ahead of production cut https://goo.gl/hsdk5z
· Dow set to extend record run as stocks aim for modest rise https://goo.gl/8vuGcM
· Fonterra makes play for Australian dairy farmers https://goo.gl/xGgZdg
Please note that CME is delaying the transition of the CME Dairy Spot Call to the electronic CME Direct Auction Platform from Monday, December 5, 2016 to a new start date of Monday, January 9, 2017. Delaying the implementation will ensure a seamless transition for our customers beginning with Nonfat Dry Milk on January 9. As a result, on Monday, December 5, the Dairy Spot Call will continue with the existing open outcry trading hours as follows:
- 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
Class III & Cheese
Consolidation, exhaustion, blow-off top all words that were bantered around yesterday as we saw the market continue retreating from spike highs Friday. Volumes were well off last week numbers as most of the action was contained in the nearby to 1st quarter period. The market is correcting an overbought situation, which could result in continued weakness today. Ultimately, however, the market has not caused any significant technical damage to the bullish posture of class III and cheese.
Expectations would be for the market to be mixed until after GDT. The weakness in spot yesterday will likely bring in additional futures sell side early today. Our opinion is that a cheese price average in the low to mid-$1.70’s for December makes sense.
Dairy products production released yesterday afternoon was neutral for cheese and bearish to dry whey. Total cheese production was up .5% but with a glaring shift to the new frontier as the Atlantic region lost 5% and Central (+1.6%) and West (+1.2%). Interesting to note Italian production in Idaho/California was up 14mm lbs. while “other” states category was down 13mm lbs. We saw a very similar shift in Mozzarella with Idaho/California up 13mm lbs. while “other” states category was down 12mm lbs.
Human grade Dry Whey production was up 8.5% in the US but more interesting was the west region was up 38.9%. Additionally, stocks rose by 18.2% month over month. All of this is rather bearish supply information, but it was demand in November – not October – that jolted prices higher recently. It will be interesting to see how much of the products mentioned above made it to the export markets in November. In the meantime, dry whey futures saw some supply driven sell side weakness following the report yesterday afternoon. There may be some additional pressure today as well, but the market appears to remain well support around the 40 cent average for 2017.
We look for Class III and Cheese to open lower, whey steady
January Class III
Class IV, NFDM & Butter
Class IV markets moved lower as both components finished solidly in the red. January butter was down 4 ¾ cents to 2.11975 while Nonfat was 1 ¾ cents lower to 1.04. The spot auction for nonfat finished 1 ¾ cents lower on a day that was supposed to be the first electronic trade of the new era but was delayed one month because of technical issues as mentioned above. Spot butter dropped 7 ¼ cents. Class IV retreated from Friday highs as quickly as its components did.
We get GDT today and for the 1st time in 4 events we saw no change in forecast volumes. Trade will be eyeing the Powder categories closely coming off the last event that saw a 9.8% increase in SMP and a 3.2% increase in WMP.
Strong milk production in October spilled over into the Dairy products report as we saw an 18% increase in NFDM production with the biggest increases in the Central (+24.8%) and Atlantic (+22.4%) regions which showed continued strong production.
We look for NFDM to open firm, Butter and Class IV to open steady
Concerns over a developing dry pattern in Argentina started the soybeans higher and export inspections really got the bean rolling finishing 16 cents higher, which sparked strength in Corn which triggered stops pushing corn finally settling up 12 cents on the day.
Inspections continue to show strong demand even in the face of a stronger dollar. Soybean inspections came in at 1,910tmt above the trade estimates. The FCStone grain group reported inspections to date are running 4.1mmt ahead of year ago and if the pace continues, will finish .87mmt more than the USDA estimates.
Corn inspections were 1,150tmt (over 1,000 for the 1st time since October 6th) and well above estimates. US corn exports prices are very competitive and leaves plenty of potential to not only exceed but to blow away USDA estimates.
Funds were estimated to have bought 16,000 corn, 6,000 beans and 4000 meal.
In our estimation, the soybean market has the greatest potential to lead the grain complex in the coming days and weeks. Soybean futures are poised for more strength both from a technical and fundamental perspective. Demand is good and that is balanced against the unknowns of South America weather of over the next 90 days. If South American weather is perfect thru February, futures gains may be capped. But it’s the uncertainty of SA weather right now that may help bolster futures today.
We expect soybeans to open higher, corn and wheat steady to lower.
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