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Morning Dairy Comments, 01/12/2017

Thursday, January 12, 2017


General Market News

· Dairy industry seeks Trump’s help with Canada under NAFTA https://goo.gl/eJ7Ztd

· Dairy leads the way as Irish agri-food exports top $11.7 billion https://goo.gl/DVE14T

· Oil extends biggest gain in 6 weeks as Saudis make deeper cuts https://goo.gl/lfUeKq

· Euro zone economy registering surprisingly strong growth spurt https://goo.gl/os8eOh

· McDonald’s inviting bids for 33% stake in Japan unit https://goo.gl/OXZlrn

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Class III & Cheese

Class III and cheese futures failed to continue higher yesterday after the premium to spot got a bit too rich for some traders’ comfort. Class III didn’t fall out of bed likely because of Dry Whey. Dry whey continued skyward on heavy volume (for that contract) of 236 trades, which likely helped support class III to some degree. The January to December dry whey price average now rests at 47.8250 as of yesterday’s settlement as demand for whey and whey futures has been nothing short of robust so far this year. We think dry whey prices have more upside, but not necessarily today. The dry whey market appears ready to consolidate around current levels.

The physical cheese market appears to be more active than seasonally expected as excess fresh blocks continue to appear tight. There has been some chatter of a slowdown in the country, but that may be more of an argument to keep prices around current levels as opposed to see any material declines in spot.

NDPSR block volume recorded a 5 year high for the first week of Jan. Barrel sales subsided some on the week, but overall demand for both remained strong later into Dec than expected, and have continued to show strength after the new year. This comes at a time when we tend to see cheese production slow down. Loses in production normally make up for the decrease in consumption, but that does not look to be the case this year.  

We talked yesterday about weather concerns out west. The Midwest and Northeast is also experiencing some of its own winter storms (not to mention a tough 2017 for certain parts of Europe). Snow and cold is normal this time of year, but there have been reports of difficultly getting milk off the farm and drops in milk per cow, which may be an on-going concern for cheese producing regions like Idaho and the Upper Midwest in January.

Fonterra’s milk collections for December were larger than expected, but still down 4.8% from the previous year. That compares to down 7.1% in November. Fonterra has been forecasting that their collections would be down 6.8% for the full season, which now looks a little too low unless they get hit with another round of really poor weather. We think they will only be down 4.7% for the current season (North Island: -6.5%, South Island: -2.0%).

We expect the Class III, cheese and whey to open weaker.

 

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Class IV, NFDM & Butter

Price volatility in the butter market was subdued yesterday despite the 2 ¼ cent decline posted during the spot session as contracts settled between a tick higher and 1.050 cents lower.  The spot and futures prices have drawn more in line after yesterday’s session unlike the other dairy markets in which futures are carry a steep premium to spot values.  The convergence of the butter market’s spot and futures value should lead to more exasperated price moves in the futures contracts to any gyration in the spot market today. 

Dry whey strength has powder buyers on edge but it doesn’t appear to be affecting NFDM futures. Futures finished mixed on moderate volume of 143 contracts yesterday. We still see risk to the upside. We’re hearing of WPC 34 going for much above last week’s AOM price of 91 cents. Between that and dry whey, it makes it tough to see weakness in the NFDM as “correct”. Nevertheless, NFDM seems to be content in the low $1.00 level for now.

Season-to-November collections by everyone except Fonterra are up 7.3%. So if you combine something like a 4.7% drop for Fonterra with a 6.3% increase for everyone else, you come out with NZ milk solids production down 3.0% for the current season.

DCANZ will release total NZ milk collections for December sometime in the next two weeks. We’re looking for production to be down 3.2 to 4.2%.

We look for NFDM to open firm butter steady to lower.

Grains

Corn traded within a wide range yesterday as contracts surged lower during the first half of trade before recovering into the close to finish within 2 cents of unchanged.  Ethanol weekly production set another weekly record of 1049 tbpd as stocks increased considerable this week. Ethanol demand looks to increase in 2017, as demand for gasoline domestically is reaching levels not seen since before the recession, which has a direct correlation to ethanol consumption due to the blend requirements.  China doubled down on discouraging DDG imports by increasing its antidumping tax to 54% from 33% on top of the already 11% tariff which is to go into effect today and last for five years. 

Soybeans sold off sharply early yesterday before retracing much of the losses by day’s end. Prices seem well supported at the current levels as U.S. product holds the best offers for export into China compared to Brazil through April by roughly 15 cents. Mixed crop conditions are coming out of Argentina and Brazil with areas either getting to much or too little precipitation. The possibility for a record domestic crop however remains high, and an uneventful report today, will shift the focus all eyes on develops in S.A.   

Wheat futures tumbled lower on improved U.S. Southern Plains weather and a lack of threats to global winter wheat production.  Rain forecasts for the Southern Plains are now calling for increased intensity with rain totals projected to equal or surpass the deficits that had accumulated in the region over the past two months. 

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We expect the grain complex to open lower today.


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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