Morning Dairy Comments, 02/22/2017

Wednesday, February 22, 2017

General Market News

· Australian cattle arrive in China boosting burgeoning bovine trade

· Russia overtakes Saudi Arabia as world’ top crude oil producer

· Euro slips, Bonds gain as investors turn cautious

· Federal Reserve to publish minutes of the Jan 31-Feb 1 meeting at 2 pm ET



Class III, Cheese, Whey

Class III and cheese saw aggressive sell side pressure yesterday amid a fresh 4-month low in the spot block price. Block cheese fell 5 cents to $1.53 on 5 trades while barrels found support at the $1.60 level, down 2 cents on the day. This cause a small panic for nearby Class III and Cheese futures, which fell precipitously for a moment intraday (down 45-55 cents). The market regained composure but finished lower across the board during a very active trade.

Over 2,700 Class III and over 1,400 Cheese contracts changed hands and open interest soared as new sellers jumped en masse. The spot weakness coupled with weaker Class IV prices have led to a material shift in sentiment to the bearish over the past week. Yesterday’s release of January milk production numbers only added to the bearishness. January 23 state milk production climbed 2.7% to 17 billion pounds, compared with 2016 levels. U.S. output was 2.5% higher at 18.1 billion pounds. Higher-than-expected milk per cow offset lower-than-expected milk cow numbers to put U.S. production above projected levels.

Sixteen states posted year-over-year milk production gains, down one state from last month. Texas led the gainers, increasing 19.2%. Milk per cow in Texas was up 9.8% from 2016 and cow numbers were 8.6% higher. New Mexico was the only other state to register a double-digit gain at 15.3%. Oregon recorded the strongest decline of the 6 states showing losses versus 2016, as the state was down 2.8% on 1.2% less milk per cow and 1.6% fewer dairy cows in the milking herd. Illinois held milk production steady from 2016.

The biggest surprise to us in this report was the 1% gain in Idaho – a state whose dairy farmers caught dairy debilitating winter storms in January. We’d expect a downward revision to this number in February.

All told, the report is bearish versus expectations. Does this set the U.S. up for 2-3% growth all year? Very much too early to tell that. But good margins and good winter weather in other milk sheds are keeping the fresh milk supply largely intact says the USDA.
What is the dairy futures complex reaction to the report? In a word: muted. The markets have nearly all moved lower over the past few weeks leading to the opinion that this report is likely already priced in to futures. We’d expect a little follow thru selling on Class III and Cheese futures this morning.
We look for Class III and Cheese to open mixed, and Dry Whey to open steady.



NFDM, Butter, Class IV

The Class IV futures tallied nearly 400 total trades during a whipsaw trading session in which the early session selling pressure was rebuffed by the late day rallies in the component markets.  The 2017 contracts settled mixed with final prices ranging from 7 cents lower to 18 higher, with the July through October months moving 9 to 18 cents higher.   

NFDM futures pushed lower early yesterday ahead of the spot session, with some contracts trading over a penny lower, before rebounding to settle between 0.25 cents lower and 1.075 higher.  Almost 500 contracts changed hands as some early selling interests were caught in a bouncing market.

As with the Class IV and NFDM markets the butter futures opened yesterday’s trading session with market participants driving contracts deep into the red ahead of the spot session.  Despite the spot price falling over a penny lower, value buyers capitalized on the opportunity to secure coverage ahead of the milk production report for the upcoming holiday and summer seasons.

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


Corn futures finished yesterday’s trade with marginal gains as little fresh news emerged to drive price action.  Funds were credited with buying an estimated 10,000 contracts near the end of the trading session in an effort to play the upside risk potential.  In the Pacific Northwest corn loadings are delayed due to weather.  Docks are and offshore lines are full while the movement of the corn is bogged down. 

Soybeans settled as much as 6.25 cents as funds were seen liquidating long positions, inspired by the selloff in Malaysian palm oil futures.  Market expectations are for a heavy recovery in Malaysian vegoil production is carrying over into the U.S. soybean complex.  South American weather is seen as less threatening to soybean production as excessive wetness in Argentina’s south central and western regions is offset by mostly ideal weather in Brazil. 

The wheat market drifted lower as needed moisture is accumulating in the dry winter wheat regions of the U.S.  Warm weather has brought rains to the Southern Plains and melted some of the above normal snow pack in the Upper Midwestern spring wheat area.  Supplies of wheat in the U.S. continues to weigh on values, which should pressure contracts lower into levels that will bring the domestic crop to export competitive prices. 

We expect grains to open steady to slightly higher.

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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