Morning Dairy Comments, 12/19/2016

Monday, December 19, 2016


General Market News

· Russia may start to selectively lift counter-sanctions https://goo.gl/wHBIYI

· Europe extend sanctions on Russia https://goo.gl/yiAo2g

· Trump and Xi’s differences magnify uncertainties between U.S. and China https://goo.gl/26q7io

· Dollar, yields, stocks all cool their jets https://goo.gl/zc7ChI

· Neutral PBOC sets up first U.S.-China tightening since 2006 https://goo.gl/hlZuAu

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Class III & Cheese

The Class III complex was relatively quiet on Friday with cheese futures trading softer, and whey still seeing a firm bid across 2017. Class III futures traded 918x and Cheese 213x, which pales in comparison of the few recent sessions we saw over 4,000 trades in Class III futures. The market may be cooling off with the holiday season approaching, and the panic of making margin calls subsiding. Looking at the Jan-June Class III chart below the market looks to be consolidating after last Monday’s nearly limit move higher. Friday’s spot cheese session had blocks settling up 1 ½ to $1.80 and barrels down 1 to $1.70. Block tightness continues to persist while barrels around the country continue to be long. The barrel market may also be apprehensive to bid the price up with anticipation of more capacity to come online in the next few months. Also in major barrel producing areas milk production continues along at a good clip, and with Class IV prices at a big discount to Class III lately that will continue to encourage more cheese production.

Dry whey futures continue to show strong support as the cash market continues to tighten up. Last week’s Dairy Market News showed the low end of the Central Mostly was up 1 cent to 37 cents, while the low end of the Western mostly was up 2 cents to 39.5 cents. The high ends of the ranges remained stagnant, although we see the strength in the low end of the ranges a confirmation of the dry whey rally. WPC34 prices were up 1 ¾ cents to 85 ¾ cents with all the strength from the bottom end of the range as NFDM prices have been bid steadily higher as well.

We look for Class III and Cheese to open higher, whey steady

Jan-June 2017 Class III:

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Class IV, NFDM & Butter

The Class IV Complex made a rip higher on Friday as the spot butter market traded up 9 ½ cents to $2.19 on 4 trades. It’s all about the fat in today’s world. The Dublin office printed up their EU exports report today, and the chart below on EU butter exports tells the big fat story. In Jan-Oct EU butter exports totaled 143k tonnes up 31% from 2015’s pace. The demand is real out there, and it’s not just a US domestic issue anymore apparently as the strength is spilling into the EU and Oceania markets. A few weeks back NZ WMP was at a $1,000/mt premium to NZ SMP, now it’s cooled off a bit to a still respectable $790 premium in January. In outside markets the entire vegoil complex is tight spurred on by big declines in Indonesia/Malyasian palm oil production. This has drastically tightened up the stocks in this market, and may be one more outside influence affecting the milkfat market. See the vegoil production and carryout chart below.

Friday’s NFDM spot session was bid up 1 ¾ cents to $1.02. It’s going to take some training to adjust seeing a “1” in front of the decimal mark. All eyes will be on tomorrow’s GDT auction which will feature 12,120mt of WMP, up 550mt from the forecast. There will be 3,850mt of SMP up for sale which is down 200mt from the forecast. Fonterra’s 12 month rolling forecast volumes have been reduced by 0.8%. Respective WMP volumes are increased by 5,450mt and SMP, butter, and AMF volumes combined reduced by 9,280mt.

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We look for NFDM to open firm, Butter and Class IV to open steady

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Grains

Corn ended the week with a quiet trade as contracts rallied into the close to settle with minimal price declines.  Farmers have been reluctant to sell of late, but with decent rains throughout much of Argentina over the weekend we should see selling pressure to start this week’s trade.

Soybean futures rallied over seven cents Friday as Chinese soybean crushers continue to buy U.S. soybeans due to their profitable margins.  Chinese soybean imports in December have been much stronger than projected as crush margins have been unseasonably and uncharacteristically strong. 

Wheat futures saw some follow through selling on a light volume trading day before firming up into the close.  Some of the late session strength was drawn from cold weather conditions in some of the global production regions that are lacking snow coverage.  The $4.00 level should provide a measure of support, but with massive supplies still available any price rally should be short lived.

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We expect soybeans to open lower, corn and wheat steady to lower.

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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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