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Morning Dairy Comments, 12/21/2016

Wednesday, December 21, 2016


General Market News

· Fonterra’s New Zealand milk collections fall in Nov., production down 7% https://goo.gl/kmWh0g

· Oil extends gains as industry report shows U.S. stockpile drop https://goo.gl/xWfPyJ

· Dollar retreats from 14-year high, banks drag Europe stocks lower https://goo.gl/omLYzU

· Obama said to use 1953 law to restrict offshore oil drilling https://goo.gl/qeTZro

· Fonterra milk prices on the rise https://goo.gl/dowOPl

· How butter became a villain – and why it’s actually good for you https://goo.gl/LEA0tT

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Class III & Cheese

Fresh cheese continues to make its way to the exchange and yesterday was no exception as blocks traded 5 loads down to $1.7850, while 8 loads of barrels changed hands down to $1.6550, bringing the spot equivalent to near $17.10. Volumes were stronger in a good two-sided trade that continues to show a lull in any convincing direction other than sideways for the moment. 
The GDT price index lost 0.5% in what we’d call a rather uneventful way to close out a year marked by material price strength. Bears may see yesterday’s event as stress cracks in the 2016 strength. Bulls may say that stability as higher prices indicates underpinning strength to the global markets. According to the GlobalDairy Trade Quarterly Report, the GDT price index has “increased 18% in Q4 and has risen 47% over 2016”.  Likely best not to get muddled down in over-analyzing a single event. The GDT price index action in 2016 is the key takeaway – not yesterday’s ho-hum auction.

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Source: GlobalDairy Trade Quarterly
The latest US milk production numbers from are reflecting a slightly bearish skew with a 2.6% increase from year ago levels. The herd also showed expansion, with 33,000 more head than a year ago and increasing 4,000 head from last month (see official numbers next page). Class III and cheese futures are steady to slightly higher this morning, but sometimes it’s more important to watch the close the day following a report – not necessarily the open.

Commercial buyers remain busy buttoning up budgets before year-end and providing some level of market support. Given the willingness of cheese sellers at the exchange and US milk production fresh on the mind, sell side interest could build ahead of year-end however. We look for a firm open but a mixed trade today.

We look for Class III and Cheese to steady, modestly higher, Dry Whey mixed. 

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Class IV, NFDM & Butter

Butter futures continue to claw to the upside, logging contract highs for the entire 2017 strip yesterday despite weakness in the spot market, which saw 3 loads trade down to $2.22 and an uncovered offer left on the table. The bulk of the volume was centered on the Q1 timeframe, where about 170 contracts have traded however gains were seen as far out as Q1 2018. The market has surged into overbought territory and with the slight 0.5% gain on GDT to a $1.90 USD equivalent, our domestic price remains the highest on the planet.

NFDM futures traded mixed on light volume with slight pressure on nearby contracts countered with firm action in the deferred timeframe as the spot price settled fractionally lower to $1.02 on 4 trades. Yesterday’s GDT auction did little to influence the market as the 0.5% lower overall showing saw WMP shed 0.8% while SMP remained unchanged.

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We look for a mixed opening for NFDM, Butter and Class IV.

Grains

Grains took a hit with beans dragging on the complex by shedding 15 cents, which sent corn 3 cents into the red and wheat 1-2 cents lower. Improving weather conditions in South America has prompted traders to take some risk premium out of the market however there’s a long way to go down there before the crop will be made. Jan beans have now retraced to trend line support (green line), its 200 day moving average (black line) and the psychological level of $10.00 as evidenced on the chart below, which could offer support to the market.

January Soybean – Daily Chart

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Calls are for Corn and Wheat to open 1-2 lower, Soybeans 3-4 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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