Morning Dairy Comments, 01/06/2017

Friday, January 6, 2017


General Market News

  • USD falls by nearly 1200 points amidst uncertainty over Fed rate hikes 
  • US adds 156,000 jobs in December, unemployment rate slightly higher to 4.7%
  • EU MMO suggests continued price rise for dairy: https://goo.gl/CR3f7R

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Class III & Cheese

Sellers continued to chop away at Class III futures with much of the forward curve through 2017 slipping by double digits on the heels of a soft spot call that saw blocks trade a single load fractionally lower, to $1.6575, while barrels were again quiet and held steady at $1.5950. The bulk of the volume traded through about mid-year, with interest tapering off from there as the trade works to take some of the premium out of the forward curve in the absence of fresh, bullish fodder. Nearby contracts have leaked lower over the past couple of weeks but still maintain a slight premium to the spot equivalent, which has been fairly steady near $16.15, while deferred months have fared better and are just now starting to track to the downside (see charts below).

The first chart shows the ongoing erosion up front in the nearby contracts through Q1 as futures have breached both the 10 and 20-day moving averages (yellow and blue lines respectively) and could be headed for longer term support levels near the 50-day moving average, which comes in at $16.48 (red line). The second chart reflects how well the deferred months have held in there until just recently, where initial levels of technical support have been breached, which could lead to accelerated sell offs towards its 50-day moving average at $17.13 (red line). 

For the time being, it does feel like the market is in a relative state of equilibrium where a $1.60 cheese price, give or take a nickel, could be deemed as fair value until some external factor weighs in to shake things up. That said, additional pressure on spot will likely lead to price action as described in the previous paragraph.

Class III January-March Strip~Daily

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Class III July-December Strip~Daily

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For the week ending January 5th, the National Dairy Products Sales Report showed blocks trimming back to 1.7696 on decreased sales volume of 12,589,933 million pounds while barrels pulled back to 1.6813 on decreased sales volume as well of 9,501,625 million pounds. Dry whey posted gains to 0.4140 on decreased sales volume of 4,902,655 million pounds.

We expect class III and cheese to open slightly lower.

 

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Class IV, NFDM & Butter

Volatility in the butter market all but vanished today as there have been just a handful of trades logged after a steady spot call left the price unchanged at $2.26, with a lone offer left on the table. Nevertheless, the futures that did manage to get on the board pushed to the upside as the trade attempts to stay somewhat aligned with cash, a function that will likely spark another wave of volatile price action in the coming sessions.

Meanwhile, NFDM futures put in a mixed showing as the spot price inched closer to a test of the recent highs by settling out at $1.03 with a bid and an offer left squaring off. Overall, the market has drifted lower of late and pulled back to levels of technical interest as the spot price is lacking conviction to press to fresh highs, but at the same time has seen relative support north of the $1.00 mark. With the latest GDT auction in hindsight and collecting dust, then trade is in much the same situation as the cheese market—in need of a catalyst to move on. 

For the week ending January 5th, the National Dairy Products Sales Report showed butter surging to 2.16 on steady sales volume of 2,254,894 million pounds. NFDM also posted gains to 0.9932 on sharply lower sales volume of 12,085,732 million pounds.

We look for NFDM to open lower with butter firm.

Grains

Grain markets continue to lack a convincing story to build sustained bullish action off of as rallies have been consistently faded despite reports of patchy dryness in Brazil and wet conditions in parts of Argentina, where some corn acreage may be scrapped or at the least designated for replanting. That said, corn has found some traction of late and looks poised to challenge areas of technical resistance where rallies have been previously blunted (see chart below). If the yellow giant is able to muscle through those levels, we’d expect a good chunk of physical to be shaken loose. Fund rebalancing will take place next week, which has also offered some support to both corn and wheat with traders likely getting out ahead of that action.

March Corn~Daily

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We expect the grains to open lower with soybeans leading the declines down 5 to 7.

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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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