Morning Dairy Comments, 01/05/2017

Thursday, January 5, 2017


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We will be hosting three separate introductory level seminars in Grand Rapids, MI (Jan 19th). These seminars will cover risk management concepts, including futures, options, and OTC markets. You’ll learn how to use these proven strategies to stay flexible in a challenging market and improve your bottom line. 

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General Market News

· China Mengniu pays $241 mln to boost stake in China Modern Dairy https://goo.gl/GFjPg0

· Idaho squares off with animal rights group before the 9th circuit https://goo.gl/mN9zdA

· 10-15 feet of snow, heavy rains to hit California https://goo.gl/ZVfeQn

· World stocks hit 1 ½ year high after strong China data https://goo.gl/wY9XSr

· Dairy Products Report today at 2 PM CST

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Class III & Cheese

The Class III and cheese contracts drifted mostly lower after a muted spot session that produced a single offer in the Blocks that pushed its price lower by a penny.  The futures contracts for both markets settled with minimal gains registered for January while settlements for the remaining contracts ranged from 2 to 14 cents lower in Class III and unchanged to 1.8 cents lower in cheese.  The largest losses for each market were tallied in the spring months as sell side interests cut into the price premiums relative to the front month contracts.

Looking to the second quarter pack in the Class III market, chart below, yesterday’s price action pushed the pack average below its main support level that had buoyed values since December 13th.  Now that this support level has been violated, the pack could find its vulnerable to further declines down into its next technical level of support around $17.14, representing a potential decline of 30 cents from yesterday’s closing price. 

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Holiday demand has come and gone so supportive events on the nearby horizon will be limited in the weeks to come.  Sell side interests will view price recoveries as opportunities to add additional coverage ahead of the spring flush while many buy side interests, those with coverage already in place for the first half contracts, will view the impending slide in prices as opportunities to address their needs for the second half of the year.  Barring a return of buyers to the spot market expect today’s trade to again drive values lower.

We expect class III and cheese to open lower.

 

Class IV, NFDM & Butter

Price action in the butter market yesterday was mixed after the flurry of activity during the spot session that saw a total of 14 loads change hands.  The January through June months caught a bid, settling 0.275 to 2.475 cents higher, as the four cent rise in the spot price thwarted the recent week long slide in values.  Conversely the July through December months closed out unchanged to 4.425 cents lower while hammering the forward curve.  The spot butter price is now higher than all futures contract, save the April, removing the prospects of a cost of carry trade.

NFDM futures closed out yesterday’s trading session with mixed, but mostly lower, pricing despite the 0.75 cent increase in the spot value.  The recent results of the GDT auction have some questioning the value of powder products ahead of today’s Dairy Products Report with our projections calling for NFDM production for
November to post a 13.3% increase over the same month last year.  Today should see NFDM futures start weaker, especially in the January through June contracts, as values fall into the next levels of technical support.

The CWAP for the week ending December 30th was reported at 96.81 cents, up 0.66 from the week prior.  Sales for the week were estimated at 3,471,600, marking a 66.1% decline week over week. 

We look for NFDM to open lower with butter firm.

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Grains

Corn futures benefitted from the strong rallies in the soybean and wheat markets as contracts settled as much as 4.25 cents higher.  The NASS ethanol crush for November posted at 451.9 mln bushels, down 3.5 mln from October, while the DDG+DDGS production slipped in kind to 2.3 mst.  Funds were estimated to have covered 8,000 shorts throughout the day.

Soybean futures surged higher today as concerns surrounding South American weather and fund buying pushed contracts up to 20.25 cents higher.  Though little confirmation of major damage to Argentina’s soybean crop has been reported, one analyst suggested a potential loss of 3 mmt of production in the region due to the excess rains over the past week.  Brazilian basis has firmed enough to place US sourced soybeans in competition for export demand through April.  Brazilian producers are seeing offers between 5 cents and $1.00 below the cost of production currently, leading to reluctant selling. 

Wheat futures rallied on technical buying coupled with the deterioration of the US winter wheat crop.  The monthly state conditions report released yesterday showed rating declines in all the major HRW states in December.  Despite the potential for significant yield and/or acreage harvested the carryout is still projected to be around at least one billion bushels.  

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We expect the grains to open 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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