Morning Dairy Comments, 02/15/2017

Wednesday, February 15, 2017

General Market News

· Inflation surges in January by most in four years, CPI shows

· Gold extends slide to 5th day as strong data lift dollar, bond yields

· Dairy co-op giant Agropur reports strong results at annual meeting

· Kellogg to Replace Flynn as National Security Advisor

· Retail sales rose 0.4% over the previous month in January (analysts expected 0.1%)



Class III, Cheese, Whey

The low volatility, low volume beat goes on for Class III futures this week as 680 Class III contracts traded in what was a mostly mixed trading session. Nearby futures bounced modestly, while fresh selling in the second half leaned into lackluster buy side interest. There was buyer interest, but little to no sense of urgency. That brings us to the main point here recently: It may be best not to mistake class III price weakness with a trend lower.

If you’re going to mistake recent weakness for anything, mistake it for boredom. In other words, the futures market appears adequately priced so far this week. Stability in spot pricing and uncertainties priced into the forward curve, market sellers are concerned by the weak NFDM market and resulting collapse in Class IV values vs. Class III. That same Class IV weakness is causing buyers to recoil.

Cheese futures traded 625 contracts yesterday, which actually makes the Cheese contract rather busy relative to Class III yesterday. Prices felt mostly weak as similar forces were at play. All that is changing this morning as we’re getting a bounce on both Class III and Cheese futures. Nevertheless, these markets are directionally ‘stunted’ for the time being.
Dry whey too remains sideways at higher levels. A lot of chatter seems to point to a market that is ready to roll over after having pushed north of 50 cents recently. We don’t see the reason for much weakness at present. Strength in European Quotations this week show a slight uptick in whey values, but still about 10-12 cents below U.S. market.

There’s no rest for the weary as adverse weather conditions in the Pacific Northwest may end up being a key driver for milk prices when we look back at Q1 this year. Storms are forecasted to hit the West Coast today and tomorrow brining significant rains and some snow to key dairy areas. Dairy country that has already seen an unusual amount of precipitation so far this year. It’s true what they say: when it rains, it pours.

For all its challenges, it’s really great to see rain and snow in this region. That being said, we’d like to send our thoughts and prayers to the folks of Oroville, California where hundreds of thousands of people have just been allowed to return to their homes. But with this new onslaught of storms, an evacuation warning remains in place.


We look for Class III and Cheese to open higher. Dry Whey mostly lower.



NFDM, Butter, Class IV

NFDM futures took some more punches yesterday but managed to bounce off the lows. Looking at the 2nd quarter chart below, futures have moved 20 cents lower in the past month and a half from $1.14. Demand in the cash market domestically and internationally is weak. The spot market was firm trading a ¼ cent higher to 90 ¼ cents on 4 trades. There will likely be some support at these levels as the market will be hesitant to test EU intervention levels in the mid 80 cent range. Keep in mind the EU is not in the business of selling SMP at a loss or pressuring the market lower.

CWAP was released last night at 99.79 cents and as down nearly 3 cents from the prior week with a volume of 6.98 million pounds. 

Butter found some support yesterday as the futures spiked higher. Spot butter traded up 2 ¾ cents higher to $2.13 on 3 trades. Many buyers are comfortable with cash prices in this range as it is within budgets. Also the  theme of tight fat and plentiful dairy solids continues on to live on.

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


Corn and Wheat both traded an inside day today with very little fundamental news.  One Mexican senator is proposing to steer Mexican corn purchases away from the US in response to the new administration.  Very little credence has been given to this as it would likely increase the overall cost to Mexico substantially while decreasing US exports very little if any. To keep in perspective Mexico has been buying about 20% of US corn exports. (See chart below)

Seasonally we expect volatility to pick up as we get nearer to the March 31st prospective plantings report but until then we would expect the market to maintain its sideways to higher trading action.  Technically it would not surprise us to see both corn and wheat to trade the range we have seen since September.

Soybeans should be much more volatile than the others as South American headlines will drive day to day trading but we still expect soybeans to continue to trade in its recent range albeit a much wider one than corn and wheat. Option volatility in most commodities is relatively low and may offer opportunity to establish some “inexpensive” option positions to cover possible needs later in the year.


Grains are opening mixed.


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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