Morning Dairy Comments, 01/03/2017

Tuesday, January 3, 2017

General Market News

· Stocks gain with commodities amid China optimism

· Oil hits 18-month high as markets eye output cuts

· France meat and dairy ‘country of origin labeling’ trial comes into force



Class III & Cheese

On Friday blocks traded 21 cars up ½ cent to $1.66 and barrels were bid 4 ¼ cents higher to $1.60 with no offers. The block-barrel spread has narrowed considerably from burdensome levels of over 20 cents for a short period in November. The Class III and cheese futures were choppy and finished lower before the holiday weekend. Friday’s CFTC Commitment of Traders report showed the “Managed Money” traders reduced their longs by 1,157 contracts (futures/options combined) for the week of Dec 21st-27th. Looking at the Jan-June chart most of the weakness can be explained by managed money exiting their longs with the weaker cash cheese markets. Most recently the market is still trading in a range bound fashion with a firm whey market.

Today the market will be focused on the GDT, which was reported down 3.9%.  Chinese buyers may be stepping back a bit, and we believe most of the buying activity from China has been related to the NZ FTA where they have favorable tariffs for January delivery. Although this was combined with a tight milk supply in NZ especially on the North Island which caused the massive price recovery. 

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

Jan-June 2017 Class III:




Class IV, NFDM & Butter

The spot NFDM market was unchanged at $1.02 on Friday with a bid unanswered. The NFDM futures traded slightly weaker as the forward curve remains at a big premium to the cash market. Looking at the spreads below the EU and US prices remain at a steep discount of about $300/mt or 14 cents/lb to their NZ counterpart.

Crude Oil is rallying this morning on confirmation OPEC countries particularly Kuwait are making good on their promise for production cuts. With Janet Yellen on course for 3 rate hikes in 2017 and the rest of the world continuing accommodative monetary policies the USD will continue to see firm bids. The stronger dollar will continue to be a headwind for a stronger NFDM market along with EU intervention stocks overhanging the market.

The spot butter market was unchanged with no bids or offers. This past week cooler heads have prevailed and the sharply higher prices have proven to shake some product loose. November’s cold storage report showed a decent drawdown of butter stocks and you can argue the demand is there. The short period of time spot butter prices were below $2 likely incentive aggressive end user buying. Although holiday demand is officially over demand is still reported to be very good, but could be more a result of buyer’s emotions to the price spike.


We look for NFDM to open mixed, and butter weaker.


It was a choppy day for corn on Friday before the holidays. Earlier in the session the funds were active covering their shorts to reposition for 2017. Weekly export numbers were 958.6k tonnes about 250k tonnes above last year. Currently commitments to date for this marketing yr are 15.1MMT ahead of last yr’s pace compared to the USDA’s yoy projection of 8.32MMT.

Soybeans were smacked lower again as the 11-15 day models for Brazil and Arg have turned wetter. Soybean export sales were below the trade’s estimated with only .974MMT marketed, more than double the .478MMT a yr ago. China booked 1.047MMT along with other players, but that was offset by a .632MMT cancellation from “unknown destinations”. Chinese crushers continue to see good profit margins at these values which should keep the market supported.


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

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