Morning Dairy Comments, 03/17/2017

Friday, March 17, 2017

General Market News

· McDonald’s is considering a dramatic change to its burgers

· Saudi ‘Mission Impossible’ makes longer OPEC oil cuts inevitable

· Trump, Merkel to hold first face-to-face meeting at White House

  • Apple announced they will setup 2 new R&D centers in Shanghai and Suzhou, China and plans to invest a total of $3.5 billion in China.


Class III & Cheese

Futures crashed again Thursday amid an emotional sell-off prompted by continued spot weakness and another round of bearish chatter among market participants. For the first time this year we saw a $14 handle on a Class III price – and a price in the $1.40s for cheese. By the end of the day the nearby futures, which took the brunt of the selling pressure, had recovered about half of their intraday losses. But the bearish beat goes on.
Many people will tell you that the market has to get low enough to cause contraction on the farm level. This has historically been the case. But there is also the demand side of the ledger. And on days like today, we ought to be asking what a mid-$1.30’s cheese price does for demand before assuming the market needs to lay waste to the dairy producers out there.

U.S. Cheese is rather cheap right now. Cheese exports averaged 7 million/month from Nov-Jan. Over the past 4 weeks the CME block price has averaged about 25 cents below the Oceania price. Based on our research, that should push US Cheddar exports up into the 10-15 million pounds range.

Cheddar production Nov-Jan was averaging 13 million/month more than the previous year. So the expected boost in exports from a 25 cent discount won’t clear all of the increase in production, we’ll still need some domestic consumption growth or a slowdown in Cheddar production. (NOTE: to do this analysis right we really ought to account for CWT subsidized exports, but they are not included

For the week ending March 4, dairy cow slaughter under federal inspection was up 5.2% at 62,200 head, compared with the same period the previous year. Year-to-date slaughter levels are 0.99% lower than 2016 levels, with 562,400 head slaughtered.

We look for a mixed opening for Class III, Cheese and Dry Whey.



NFDM & Butter

Butter futures fell across the board yesterday on heavy volume. 305 contracts traded from unchanged to about 1.50 cents lower. But the real battle royale was during the spot call where 22 loads of butter traded between $2.11 and $2.12. There is demand, but we can see that even diverting fat out of the churn lately isn’t deterring sellers. The fact is we have milk and components are good and Easter demand is behind us (although we’ll have to see what demand looks like during the post-Easter pipeline refill). And with weakness everywhere else in the dairy complex, it was only a matter of time before butter saw some pressure. All that being said, the global fat market is still firm and that will continue to provide some ballast against butter market bears going forward.

USDA weekly butter stocks were up 37.1% from the previous week and are 10.6% above last year.

After having been the beacon of bear market news, the NFDM market is rather stable lately. Demand around the 80 cent level seems to be alive and well although, but no really level of buyer worry. In fact, quite the opposite is true with offers of product in the high 70’s reportedly being turned down. Nevertheless, we’ve got to go back two weeks to see the futures market lows. The CME Grade A NFDM price is down 1.50 cents from last Thursday at $0.7950. There were 17 trades at ranging from $0.7875 to $0.8100.

We look for a more mixed start to the day for NFDM, Butter and Class IV.


Exports sales continue to outpace USDA’s expectation. Yesterday’s numbers showed shipments 2.25 mmt ahead of the USDA’s estimates. Funds were thought of to be buyers of 7,000 contracts, as futures finished 1-3 cents higher. Beans were also able to make small gains. Weekly export sales came in on the low end of the trade estimate but cumulative sales have still beaten USDA estimates by 7.75 mmt. Funds were credited with buying 2,000 bean contracts yesterday. In the overnight, corn futures traded just 12k times. Maybe due to March Madness or celebrating St. Patrick ’s Day. Regardless, distractions are plentiful on this Friday and a quieter trade is expected for that reason.

Crude firming up a bit, USD flat, only real story to watch is the sabre rattling going on with North Korea and that will ultimately fall on the Chinese to contain that situation. 


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