Morning Dairy Comments, 01/25/2017

Wednesday, January 25, 2017

General Market News

· DOW cracks 20,000 intraday for the first time ever

· Australia milk production down 4.1% in December

· Farm groups want seat at the table for restructuring NAFTA

· $2 million proposed in funding for dairy relief bill

· Banker brought in to future-proof big dairy business

· This is what $20 million hidden under a mattress looks like



Quick Update

Although it seems as though the dairy complex should have fallen more significantly this week, markets were rather stable yesterday ahead of the double-header of major USDA reports released yesterday afternoon: December Milk Production and Cold Storage reports.

Here at FCStone, the knee-jerk reaction to a 2.4% increase in milk production was mostly “neutral”. Total cow numbers were a bit bearish (highest since 2008) arriving 16,000 head more than we forecast and up 11,000 head from November. The strongest herd and milk production growth was down in the Texas/South Central region. Texas production was up 11.7%, Kansas rose by 9.51%, and Colorado up posted a 7.3% gain. From January to December 2016 the region added 62,000 head. Some of that – maybe 20,000 head - was rebuilding from the cow loss incurred from winter storm Goliath in December 2015. But another chunk of that growth is likely going into the increased cheese and powder processing capacity in the region.

Overall, U.S. milk production ended 2016 1.6% above 2015 levels on a daily basis at 212.5 billion pounds. During 2016 the average dairy cow in the U.S. has produced 22,770 lbs. of milk, a gain of 1.4% on a daily basis, while the cow herd has grown 0.2% to average 9.333 million head.

The initial reaction to the Cold Storage report was decidedly more bearish. Butter inventories Butter stocks of 174.9 million pounds were 12.8% higher than they were in 2015 and 22.5 million pounds more than expected. The butter supply at the end of December was equivalent to 33 days worth of use, compared with 31 days last month and 30 days last year.

American cheese stocks of 728.9 million pounds were 3.98% higher than a year ago and 2.2% above the previous month. The American cheese supply at the end of December was equivalent to 56 days worth of use, compared with 56 days last month and 55 days last year. December stocks were 3.03 million pounds more than expected. November stocks were increased 0.6 million pounds

December Cold Storage – INTL FCStone estimates vs. USDA actual


Butter                                           152.4 mil. lbs., down 1.7%                  174.9 mil. lbs., up 12.8%

Natural American                   725.9 mil. lbs.,      up 3.5%                   728.9 mil. lbs.,   up 4.0%

Total cheese                           1,200.7 mil. lbs.,      up 4.8%                   1,206.6 mil. lbs.,   up 5.3%

December Cold Storage – month-to-month change in stocks

2016 2015 5 Yr. Avg. 10 Yr. Avg.

Butter                                     13.7 mil. lbs.    22.3 mil. lbs.         9.9 mil. lbs.        6.3 mil. lbs.

Natural American             15.7 mil. lbs.      1.3 mil. lbs.         7.9 mil. lbs.        6.3 mil. lbs.

Total cheese                        24.0 mil. lbs.     -2.0 mil. lbs.       12.5 mil. lbs.      14.8 mil. lbs.

Class III, Cheese and Butter were all lower overnight on good volume as neutral to bearish USDA news weighs on markets already running a premium to spot values. NFDM is steady/firm – ironically – in a market that seemed to be the dairy complex anchor for the last few weeks. How markets finish today will give a more complete picture as to the sentiment out there right now. Although prices are weak, we expect commercials to continue to buy dips – which may make for a good two-sided trade once again.



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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