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Morning Dairy Comments, 02/14/2017

Tuesday, February 14, 2017


“Accept the challenges so that you can feel the exhilaration of victory.” -George S. Patton

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General Market News

  • Equities hit fresh high for 3rd consecutive session
  • Foot & Mouth outbreak hits South Korea resulting in cow culling
  • Yellen to speak in front of congress today
  • Protests about President Trump in Mexico with threats to cut corn imports: https://goo.gl/2lnYfy
  • Prairie Farms announces plant expansion: https://goo.gl/6TWDpC

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Class III, Cheese, Whey

A weaker Class III complex on low volume Monday lacked the conviction of full-blown trend reversal. However, Class III and Cheese futures are approaching long-term support levels, which if broken would open the door to retest lows made in Oct. The chart below shows the Q3 Cheese futures pack, resting right atop of the 200-day moving average.

The futures market brushed off news of a potential listeria contamination that caused a recall of cheese produced at an Indiana facility. The plant produces around 40k lbs of cheese a day, which in the grand scheme of things is not very much, especially when there is plenty of milk around in neighboring MI.

South Korea has been dealing with some foot and month concerns as of late. During their 2011 outbreak, heard reduction lead to a 9% drop in production. Milk equivalent imports jumped some 41% that year. No word yet on how wide spread the most recent outbreak is.

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We look for class III & cheese to open mostly lower, dry whey steady to higher. 

 

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NFDM, Butter, Class IV

NFDM futures saw the most activity out of all dairy futures Monday trading 516 times, on a limit down day in select differed months.  Exports have been extremely quiet with market participants pegging prices in the high $0.80s in order to get product moving again, specifically to Mexico. In less than a month the April futures contract has fallen 17.95 cents; that is almost $8,000 per load. This massive market correction without one event to cast the blame on makes you wonder how prices got above $1.00 in the first place. 

Butter went unchanged on the spot market, while futures settled mixed. Spot and Futures have been inching lower for a roughly a month now but are still holding well above seasonal norms. It makes more economical sense to build inventories at $2.10 rather than +$2.20, especially with cream multipliers starting to stabilize. Stocks should continue to rise, with just enough product making its way to the physical market to support prices. 

We look for Butter to open firm, NFDM & Class IV lower. 

Grains

Corn futures broke past the upper end of the 4-month long trading range yesterday. Export inspections beat the highest of trade estimates by 255 tmt.; and are on pace to surpass USDA projections. However, the USDA’s inflated feed use forecast should make up for the discrepancy in exports on the balance sheet. Funds however are still optimistic that higher exports will translate to lower ending stocks and were again buyers of corn yesterday; and estimated 5,000 contracts.

Beans were unable to sustain marginal rallies throughout the trading session and closed 1 ½ - 4 cents lower. Weather in South America remains favorable, despite some regional concerns as harvest progresses ahead of the seasonal pace. Brazil producers have been reluctant to sell their product at these levels. This may be a reason why the U.S. has seen stronger than expected exports into 2017. The U.S. remains competitive with Brazil through May. This should help support exports and in turn prices for the time being.

We expect grains to open 2 to 5 lower across the board.   

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French, UK and EU Monthly Milk Production Estimates

Using the daily and weekly production numbers reported in yesterday’s Daily Report, we’ve estimated French milk collections for December and January, and UK milk collections for January. French milk collections for December are estimated at 2.04 million tonnes, down 6.7% on the 2.19 million tonnes Eurostat reported for December 2015 collections and 5.0% behind the three year average for December and 4.0% behind the five year average. If realised, this would put French collections for the 2016 calendar year at 24.75 million tonnes, down 2.5% on 2015. Our December estimate also puts Q4 2016 collections at 5.84 million tonnes, down 453.98kt (-7.2%) on Q4 2015. Under the Voluntary Milk Reduction Scheme, French farmers applied to reduce their milk production by 181.40kt (2.88%), suggesting the reduction in milk production far exceeds the reduction accepted by the EU.

Our estimate for French production in January comes in at 2.12 million tonnes representing a decrease of 5.6% compared to January 2016, 4.9% behind the three year average for January and 3.8% behind the five year average for the month. This would represent the lowest volume of milk collected in France in January since 2013.

Looking at the UK, our estimate for collections in January suggests that milk production will drop by 4.4%, totalling 1.21 million tonnes. This also represents a 2.3% reduction on the three year average for January, but 1.46% ahead of the five year average for the month. As per French collections, if realised, this would also represent the lowest volume of milk collected in the UK in January since 2013.

Combining our estimates for France, the UK and a further estimate for German in December with our existing Eurostat collection data for December, we can now account for/estimate milk collections for 21 of the 28 EU Member States. These 21 Member States accounted for 83.6% of the milk produced in the EU in December 2015. As such, we estimate collections for those 21 member States in December totals 10.01 million tonnes, down 3.9% on December 2015, 0.4% ahead of the three year average for December and 2.3% ahead of the five year average for the month. The remaining Eurostat production data for December expected to be released in the coming week which should provide us with a clearer picture of EU milk production in December and total production for the 2016 calendar year.

EEX Futures

A combined 30 lots (150 tonnes) traded on EEX yesterday with all lots trading over Q2 2017 SMP.  Jul17-Sept17 traded 10 lots per month with Jul17 trading the first 10 lot at €2,049, down €1; Aug17 trading 10 lots at €2,091, down €9 while Sept17 traded the remaining 10 lots at €2,144, down €6.

NZX Futures

A combined 525 lots/tonnes traded on NZX overnight with 455 lots/tonnes trading over WMP, 10 lots/tonnes trading over SMP and 60 lots/tonnes trading over butter, Feb17 traded the first 40 lots of WMP at $3,310-$3,305. Mar17 traded the next 200 lots at $3,320-$3,300. Apr17 traded 65 lots at $3,350-$3,325. May17 traded the next 60 lots at $3,335-$3,325 whiles Jun17 traded a further 50 lots at $3,335-$3,305. Jul17 and Aug17 traded 20 lots per month at $3,310 and $3,300 respectively. SMP traded its 10 lots over the May17 contract at $2,490. Butter traded the remaining 60 lots on NZX overnight with Jun17, Jul17 and Aug17 trading 20 lots per month at $4,400, $4,360 and $4,320 respectively.


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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