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Morning Dairy Comments, 12/12/2016

Monday, December 12, 2016


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General Market News

· Fed expected to raise interest rates this week

· Oil prices jump nearly 4% after non-OPEC producers agree to cut output

· European stocks pull back from 11 month high

· Murray Goulburn tabs Ari Mervis as new CEO

· Winter milk price increases for Ireland: https://goo.gl/uyRJ7j

· Teagasc economists project favorable year for Irish dairy producers, struggle for beef prices: https://goo.gl/VU6zFv

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Class III & Cheese

Friday’s session was a great indicator that this rally is still bullish from a technical standpoint. We eased back from overbought levels earlier in the week and prior to the spot session even opening futures were off and running. Futures traded to 20+ cent gains even ahead of the spot session and surprisingly while the spot market was down 1.25 cents for the blocks futures were still able to mostly hold their gains. It’s a very strange formation in the market at the moment as seasonally we would expect to continue to see a sell off on spot valuations, however current spot values would put the class III equivalent around $16.30 but we have a premium being priced in on the forward curve as January settled $16.68 while February settled at $16.88.

Below we include the Jan to March pack average where you can see the bullish technical formation we discussed. On the week the pack closed down 8 cents as prices attempted to rally back on Friday to close out the week. The cheese market is going to need continued support from class IV prices moving higher in order to sustain the current futures levels and we may very well need that and for cheese exports to pick up as well given the expectation of weaker prices into Q1. 

Daily Jan to March class III pack average:

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Friday’s class III rally was partially due to the cheese market but also was driven by gains in the dry whey market as well. After a brief pullback of really just 2 sessions following the bearish dairy products report as the DMN prices were strong and supported Friday’s rally. Settlements were +0.05 to +1.50 on the day as the market much like class III from a technical perspective appears to have taken a brief pause only to continue to push higher. From a fundamental perspective it’s hard for us to get behind a massive continued run given the relative production and stocks of NFDM/soybean meal as viable protein alternatives for feeding but we must respect the technical support as well as the strong export demand from China.

We look for Class III and Cheese to open steady to slightly higher.

 

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Class IV, NFDM & Butter

While the class III market was strong to close out the week it was a mixed day for the class IV market as most contracts closed steady. The butter market saw the spot session fall by ½ a cent but futures remained steady to +0.675 on the day on light volume. The market still feels well supported despite the pending end of holiday demand as our exports were very strong for the month of October and we continue to hear loads of cream moving into Canada & Mexico. It will be very interesting to see how things move now that we are past holiday demand as certainly more product should come available but as with this past year we will likely see end users and processors build up inventories as domestic demand has remained firm. We’d lean towards support coming into the market from the buy side on any further price declines.

The NFDM market finished the week on a lower note with settlements steady to -1.175 cents lower on the day. It’s hard to believe that following a bullish GDT report on Tuesday the Q1 pack lost 2.353 cents last week to close at $1.06458. The dairy products report was certainly bearish on Tuesday with the surprise stock level increase but the international market still should offer some support as this market looks to try to grind it’s way higher to match up with the carries on the forward curve.

NZX prices were mixed overnight with WMP prices under pressure settling down 5 to 40 per ton through the first half of 2017. SMP futures were mixed with Jan up 90 and March down 15. The futures forward curve looks to be doing some corrective action on the SMP/WMP spread.

We look for NFDM, Butter and Class IV to open mixed this morning.

Grains

The grain markets closed out the week on a firmer note with prices rallying 6 cents on corn to $3.5950, 10.50 cents on beans to $10.3750 and 8 cents on wheat to $4.1625. The December monthly USDA S&D update was a snoozer Friday as things were left unchanged across the board, estimates from today’s report included below. This initially led to a slight pullback for futures prices but technical strength on the longer term charts won out and pushed prices higher into the close. As you can see on the charts below, both corn and soybeans look bullish from a chart perspective at the moment. We have very good demand, however ending stock levels remain burdensome so from a fundamental perspective this isn’t a rally we’d necessarily buy into at the moment. However, as we well know given our current dairy marketplace this isn’t a necessity to fuel a rally. There are some early indications that Argentina is drying out that could be a larger concern moving forward and may well be the fundamental reasoning for a price increase.

Daily March Soybeans:

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Daily March Corn:

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We look for corn and beans to open steady to slightly lower, while wheat leads the declines down 6 to 8 cents. 

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UK Milk Collections Estimate for November

Data released by AHDB on Friday reporting daily UK milk collections for the week ending December 3rd showed collections for the week totalled 251.0 million litres, down 7.6% on the same week last year which represents a shortfall of 20.6 million litres for the week compared with 2015. Using AHDB’s data to estimate monthly collections for November puts collections for the month at 1.11 million tonnes, down 7.6% on last year and 3.7% behind the three year average for November, which is a considerably sharper fall-off in collections than the 6.0% reduction reported by Eurostat for the previous month. If realised, combining this estimate with Eurostat’s collections for the year to October puts cumulative collections for the year to the end of November at 13.40 million tonnes, down 3.9% on the same point last year.

Weekly French Milk Collections

FranceAgriMer data released on Friday showed weekly milk collections for the week ending November 27th totalled 469.2kt, down 7.8% on the 469.2kt collected during the same week last year but up from the 430.5kt collected a week earlier. This represented the first time in three weeks where we saw the weekly year on year percentage difference narrowed, albeit by just 0.3% with the two previous weeks which reported milk collections 8.1% behind their corresponding week last year. Cumulative collections for the season to date now total 15.38 million tonnes, 3.5% behind the same point last year and 5% behind the 16.18 million tonnes collected by the same point of the 2014/15 season.

New Zealand Weather - November Review

A report by NIWA in NZ showed some parts of the country experienced their wettest November on record (since 1928). Low pressure systems brought excessive amounts of rainfall to many parts of NZ while other area’s saw rainfall well below normal for the month. Most parts of every region in the NI saw rainfall hit 120-149% of normal levels with the exception of Hawke’s Bay and Gisborne which recorded rainfall levels well below normal for the time of year. On the SI, Southland and Canterbury saw rainfall levels around normal for the month while the rest of the SI received 120-149% of the normal amounts for the month or more. As a result of the large amounts of rainfall received, conditions were cloudier than normal also as both the NI and SI recorded sunshine below normal in November with the NI receiving 75-89% of normal values or below. It was a similar story for the SI where 75-89% of normal sunshine levels were received, while some coastal parts of Canterbury and Otago saw considerably sunshine levels with values coming in around normal. The reduced sunshine could have negative implications on grass quality with low levels of sunshine affecting the sugar levels in the grass and in turn affecting milk-solids production. Despite the excessive rainfall and cloud cover, temperatures remained 0.5oC either side of normal which should have facilitated good grass growth conditions.

EEX Futures

A combined 123 lots (615 tonnes) traded on EEX on Friday with 90 lots (450 tonnes) trading over butter and 33 lots (165 tonnes) trading over SMP. Butter traded its 90 lots over Q2, Q3 and Q4 2017, with Apr17 to Dec17 trading 10 lots per month. Apr17 traded its 10 lots at €4,010, down €40, May17 traded its 10 lots at €4,000, down €50 and Jun17 traded 10 lots at €3,934, down €116. Jul17 traded the next 10 lots at €3,918, Aug17 traded 10 lots at €3,898, and Sept17 traded 10 lots at €3,895. Oct17, Nov17 and Dec17 traded 10 lots per month at €3,845 each. SMP traded its first lot over the Jan17 contract at €2,150, down €70 from its last traded price. Q3 2017 traded 10 lots per month at an average price of €2,270 while Jul17 traded a further two lots at €2,250.

Friday’s traded volume brought the total for the week to 782 lots (3,910 tonnes) consisting of 128 lots (640 tonnes) of butter and 654 lots (3,270 tonnes) of SMP.

NZX Futures

A combined 1,805 lots/tonnes traded on NZX overnight with 1,755 lots trading over WMP and 50 lots trading over SMP with all lots settling lower. WMP traded its first 1,100 lots over the Dec16 contract, with 1,000 lots trading at $3,605, unchanged on its last traded price and 100 lots trading at $3,600. Q1 2017 traded 100 lots per month at an average price of $3,630, while Feb17 traded a further 50 lots at $3,620 and Mar17 trading a further five lots at $3,635. Q2 traded 100 lots per month with Apr17 trading 100 lots at $3,605, May17 trading 100 lots at $3,615, and Jun17 trading 100 lots at $3,615. SMP traded the final 50 lots on NZX overnight at over the Mar17 contract at $2,765.

The NZX milk futures Sept17 contract traded 45 lots (270,000 kgMS) overnight settling at NZ$6.35, unchanged on its last settlement price.


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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