Morning Dairy Comments, 01/23/2017

Monday, January 23, 2017

General Market News

· Spot NFDM moves electronic today

· Dairy farmers spray EU HQ to push demands for better prices

· Trump picks Sonny Perdue for Ag Secretary

· Kroger Co. to fill 10,000 permanent positions

· Q4 McDonald’s same-store sales soft in U.S., but strong globally – up 2.7%, above expectations



Class III & Cheese

Class III and Cheese futures had a sideways trade last week with the first half 2017 Class III strip moving just 2 cents. On the spot side of things, the block average shed 1.6 cents to $1.7038. Weekly average barrel pricing feel 3.75 cents to $1.5869.

Using Friday’s settlement prices the block/barrel spread now stands at a 16-cent premium to blocks. This is far cry from what was posted on the NDPSR, which for the second week in a row priced blocks 6 ½ cents higher than barrels. We think the spread should correct some this week although likely remain outside of historical norms. We ended last week with a very soft tone, so we expect that to be the direction early this week. Demand seems to be ample however, so we look for a good two-sided trade to continue for spot.

A host of flood advisories issued by the National Weather Service in California come to an end later this morning as winter storm Leo, which battered much of California over the weekend, begins to exit eastward over the Rockies and into the plains. According to climatologists, snowpack in the Northern Sierras is now just above where it was last year, which was above normal. The real winners in this storm are the central and southern Sierras, where snowfall totals are materially above last year.

New Zealand also got hit with what local media are calling a ‘weather bomb’ from late Thursday and over the weekend, as an extremely low pressure weather system passed northward up and across the SI and over the NI. The SI took the biggest brunt of the heavy to torrential rainfall, gale force winds and even snow on the Southern Alps. Soil moisture and the pasture growth index has improved after the weekends rainfall, with the majority of the South Island close to normal. North Island will still need more moisture going forward to keep pasture growth up.

Tuesday the USDA will post its Milk Production numbers for December. We are estimating total US production to show a 1.3% increase vs November and a 2.3% YOY increase - driven mostly by growth in milk per cow.

USDA's Livestock, Dairy, and Poultry report projects 2017 cow numbers will increase 0.4% to 9.365 million head. Milk per cow is expected to grow 2.1% to 23,185 lbs. Milk production in 2017 is estimated to be 2.4% above 2016 projected levels at 217.1 billion pounds.

USDA’s weekly stocks report, which doesn’t include all facilities in the monthly report, shows butter stocks are 2.02% above a year ago but cheese holdings are 8.7% lower.

Slaughter for the week ending January 7 was down 16.6% from a year ago, at 57,100 head.

December monthly slaughter was down 0.9% from 2015, at 253,000 head, but 0.7% higher than the previous month. In 2016, dairy cow slaughter was 1.3% below 2015 on a daily basis at 2,885,800 head.

Exports of dry whey have started to slow down, as China begins its New Year break. The physical market in the US though remains supported for now, but may start to loosen up in the coming weeks as buyers shift to alternative protein sources. 

The December consumer price index (not seasonally adjusted) for dairy products of 217.9 was 1.3%

below 2015. The index was 1.2 points higher than last month.

We expect class III and cheese to open mixed/firm and dry whey mixed/lower.



Class IV, NFDM & Butter

Winning prices for SMP and WMP on the GDT came in lower last week at -1.6% and -0.1% respectively. Additional weakness was expected, so the results of Tuesday auction were more bullish in nature. China was once again the largest buyer during the auction. The Middle East, which is still thought of to be short product picked up some volume, but still looks to be buying hand to mouth. Domestically the weekly average spot NFDM price fell $0.0065 cents to $1.02/lb. but looks to be well supported above the $1 market with strong demand for fresh product. Over in Europe, the EU Commission again rejected all bids for the tender on SMP Intervention stocks. Recent weakness from the international market might incentivize the commission to lower the price level of acceptable bids, but will proceed with caution as to not spook the market.    

Butter futures were steady last week. The spot average came in at $2.245. Inventories across the US are starting to build, spot loads are readily available, and cream supplies are ample for now. Internationally, butter prices came off some in Europe, but posted a 3.7% gain on the GDT last week. Production is slowing in Oceania as manufactures are shifting more milk volume in WMP production. Overall, the market seems content at these elevated price levels, and the long-term trend remains higher. However, futures and spot could experience some seasonal weakness this week over the next few weeks.

We look for NFDM to open lower, Butter and Class IV mixed.


Export sales for corn came in at 1.367 mmt last week, beating estimates that ranged from 0.900-1.200 mmt. Current commitments put this year’s sales 15.400 mmt over the USDA’s expectations. Funds continued to liquate their short positions last week in corn, trimming off 28,000 contracts. Soybeans witnessed 20+ cent gains last week aided by exports that also beat estimates, ranging from 0.400-0.600 mmt, recording sales of 0.979 mmt on the week. Argentina got some moisture relief overnight and still more expected in the 11-15 day forecast. This may help take some of the edge off the recent bean/grain rally.

We expect the grain complex to open lower across the board.

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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