Morning Dairy Comments, 12/15/2016

Thursday, December 15, 2016

"We act as though comfort and luxury were the chief requirements of life, when all that we need to make us happy is something to be enthusiastic about." – Albert Einstein



INTERVENTION TENDER: Provisional information is that the first intervention tender, which closed on Tuesday 13th December, had a minimum selling price of €2151, with 40 tonnes of product sold (yeah not much). There was up to 22,150 tonnes of SMP available in this tender, consisting of product that was accepted into intervention before 1st November 2015. This is mainly made up of SMP in Belgium, Lithuania, Poland, Ireland, France and UK, which make up 20,235 tonnes of the 22,150 available and overall is 6.2% of the 352,951 tonnes of SMP in intervention at the end of October 2016. Based on previous communications from the commission, from January onwards we will move to two tenders per month, until the 22,150 tonne allocation is sold. Any further sales of the remaining SMP in Intervention, over and above the 22,150 tonnes being offered in the coming weeks will be subject to approval by a separate vote by member states.

General Market News

· Fed raises interest rates yesterday for only the 2nd time since 2006

· Australian milk production to hit 20-year low

· Dollar climbs to strongest since 2003 on Fed; bonds drop

· Wall Street set to open lower in interest rate outlook​ 

· NZ dairymen to focus on debt repayment as dairy prices return to profitable levels​ 

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Class III & Cheese

Volatility continues as the class III and cheese futures trade could aptly be characterized as “consolidation”. Trading volumes remain robust as over 2,000 class III contracts changed hands inside a 20-30 cent trading range yesterday. Cheese futures were less robust posting just under 300 contracts of volume. Most interesting of yesterday was the block/barrel spread, which narrowed to 4 ¼ cents yesterday for the first time since November 4th. Typically the convergence of the spread to more “normal” levels indicates market stability. Closing out the year in the mid to low $1.70s makes sense to us.
Over 4,700 class III options traded yesterday. Over 2,000 of them traded in the months of April and May at the $16.75 put, $17.50 call and $18.50 call strikes. This may have been part of the cause of April and May’s intraday strength relative to the rest of the market.
Demand for cheese remains strong especially Mozzarella.  Chatter around block cheese has softened a bit with the market using adequate instead of tight.  Barrel inventories have been described as long but recent spread activity had some barrel producers pulling back looking for a more favorable spread.  Class III and cheese futures fell from pre-spot highs to finish mixed with isolated spots of strength. 


Most of the strength was focused in the 2nd quarter which finished up 18 cents with the market seemingly recognizing a discrepancy in the futures curve.  The chart below shows the adjustment made yesterday compared to Monday’s closes.



Class IV, NFDM & Butter

Class IV futures adjusted double digits higher as butter and nonfat finished in the green. Nonfat futures have generally traded higher since mid-November with a slight uptick in cash values domestically. International values have also creeped higher but Europe’s intervention programs seem to be capping their prices as of late.


EU and Oceania butter prices have risen since lows were made in the 2nd quarter of this year but unlike the US, which saw prices peak in July, has continued its steady rise. 



December grains expired today with December wheat finishing down 6½ cents while the corn finished 4 ½ cents lower.  March the next deliverable month was able to shrug that off and finish a penny higher.  Midwest basis has firmed as of late as farmer selling interest is absent.  The market is expecting 1.1mmt down from 1.5m but double from last year.

Soybeans finished 5 cents lower testing support near 10.35 in the March contract.  SA weather forecasts continue to look favorable.  Exports are likely to range between 1 and 1.5 mmt. 

The wheat market was relatively quiet finish a ½ cent higher.  Weather concerns from lack of snow in US and RU coupled with cold weather seems to be keeping a slight bid underneath this market.



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