Morning Dairy Comments, 01/04/2016

Wednesday, January 4, 2017

“A truly strong person does not need the approval of others any more than a lion needs the approval of sheep.” – Vernon Howard



General Market News



Class III & Cheese

The first trading day of 2017 resulted in a mixed market as weakness appeared in the 2nd quarter of the Class III futures.  Looking at the chart, we see range bound trade since mid-December; consolidation as the market prepared for and returned from the Holiday break.  We are more interested in how the markets finish this week then how they started.

2nd quarter class III futures


Spot volumes started slowly as we expect the holiday alignment this year kept many more people out of their offices for much more time than typical.  Dairy Products production; released today at 2 pm CT, expected to show total cheese production a sliver below 1 billion lbs. slightly higher than last year.   American cheese production is expected to come in just over 389 million lbs. higher than last year.

We expect class III and cheese to open higher.



Class IV, NFDM & Butter

The first GDT auction of the year was yesterday and saw whole milk power fall 7.7% dragging the weighted average price down 3.9% to US$ 3463 per MT.  Skim milk powder was up 2.3% to US$ 2660 MT.  Overnight January NZX WMP trading down 260 MT with the other months showing similar offers as the auction broke its string of five consecutive higher events. 


Spot led butter futures limit down or nearly so in the 1st quarter continuing to correct from recent probes above 2.30.  Easter falls on April 16th giving churning operations 20 additional days to cover customer needs.

1st quarter butter futures


Dairy products production is expected to show a significant decrease in butter production in November but coming off a significantly higher production last November.  The chart below puts the estimate into focus (red line and marker are as forecasted).


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



Corn finished higher as speculative trade bid the market higher in anticipation of index fund rebalancing which could see the funds increase long positions by up to 100,000 contracts.  Corn basis continues to tighten as farmer selling is light; July Corn finished 4 cents higher to 368 ¼.

Wheat finished lower stuck between a legume and a cob.  Export inspections were unexciting landing right in the middle of expectations.  Seasonally shipments are falling behind and may force the USDA to dial back exports; July wheat finished 2 ¾ cents lower to 431 ½.

Generally good weather in South America is making it difficult for the bulls to mount much of an attack.  It was announced yesterday that the tariff on Argentinian soybean exports will begin to reduce in 2018 and be down to 18% in 2019.  This reduction is not coming as soon as expected or with as much of a cut.   Export inspections were again strong coming in at the high side of expectations.

We expect the grains to open moderately higher.



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