Morning Dairy Comments, 12/14/2016

Wednesday, December 14, 2016

General Market News

· Fed policy statement today at 2pm Eastern

· Retail sales up 0.1% in November vs. 0.4% expected

  • UK unemployment is now at a 10 year low of 4.8% with employment at its highest level since it has been tracked at 74.5% of the population.
  • Wells Fargo failed its “living will” test for a second time
  • New Zealand looks to dairy boom in 2018

· Mozzarella Plant Landmark for dairy Industry

· Irish researchers say green pastures mean better dairy products


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Link to registration site


Class III & Cheese

December has been busy for class III futures. Tuesday marked the 3rd time this month class III volume eclipsed 4,000 contracts traded and set a new volume benchmark for the bellwether dairy contract. Never before have we traded over 4,000 contracts on three separate days during a given month. Why the sharp jump in volumes?

There may be two sides to the story. First, delayed commercial hedging is a main culprit of rising prices lately. Demand for futures and forwards has risen after bearish US dairy news kept far too many buyers on the sidelines this fall. But as days click off the calendar and stories of shrinking global milk production, buyer worry gets dialed up and compacted into a shorter timeframe.

The other piece is what happened yesterday, which is related to the above but different. Yesterday was really marked by a good deal of emotion. Follow-through buying early yesterday was likely of mix of short-covering and a peak of buyer panic. But after the spot call, calmer heads prevailed and bids became fewer and farer between. Producer selling has also picked up quite a bit here this week as Christmas has come early for those seeking a good margin on their milk production.
After yesterday’s volatile class III and cheese trade, everyone is wondering whether or not the rally is truly over or not. The market is still technically bullish and fundamentally, little has changed. A $1.70 cheese price seems to make more sense today than $1.90 (or $1.50). Milk is flowing fairly well in the US, but the world remains tighter. Discussions point to good demand, but slowing phone calls for cheese. The answer to the question then is really more about the mood of market participants for now. Did the risk management seeking futures buyers get their fill? Are they still worried? We may take a day or two of consolidation or sideways trading to figure this out, but many times perceptions overrule data points in volatile markets. Keep your hands inside the ride.

Dairy farm margins are improving nicely this December. Although the market is acting bullish and our opinion of prices is rather bullish, don’t fall asleep at the switch. Make sure to be watching these markets and looking for opportunity to slide floors underneath the market or forward price percentages of your milk production at reasonable levels. Call us with any questions.

CWT has announced that it has accepted 13 requests for export assistance.  The member cooperatives have contracted to sell 2.518 million pounds of cheddar and Monterey Jack and 440,925 pounds of butter to customers in Asia, the Middle East, North Africa and Oceania.  The product delivery period ranges from December 2016 through March 2017.
We look for a mixed-firm opening for Class III, Cheese and Dry Whey.


Class IV, NFDM & Butter

Butter futures were firm through the first half with the 2nd half left unchanged by the close of the day session.  Although volume was light yesterday, butter futures seem to be firmly planted in $2.00 range ahead of the holidays.  January, specifically, has remained above $2.00 since mid-November. While off its high, potential last minute holiday buying could keep this market firm. Cream into Canada may also continue to contribute to a firm tone to finish out the year.


It was a mixed affair on the NFDM side of things with nearby contracts slipping a bit while deferred months advanced, all on light volume. The trade is at a crossroads here as much of the bearish aspects out there have been factored in however the spot price continues to fail at the $1.00 mark. Yesterday’s fractional slip on the spot market

We look for a steady-higher opening for NFDM, Butter and Class IV.


Grain markets traded on both sides of unchanged as traders continue to balance a slightly bearish report from USDA last Friday against weather developments in South America, where Brazil received some beneficial rainfall in certain areas that were deficit however persistent dryness is forecast to remain an issue with Argentina. This is still a developing story that needs to be watched that will have bullish implications moving forward as traders will begin chatting about yield reductions. At this juncture though, the trade seems fairly content to hover around technical areas of interest until the South American picture comes into better focus as evidenced by the chart below, where January beans remain right near its 10-day moving average (yellow line on chart below).

We look Corn to open mixed, Soybeans 3-5 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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