Morning Dairy Comments, 03/20/2017

Monday, March 20, 2017

General Market News

· U.K. to trigger Brexit March 29th

· China prepares to counter any U.S. trade penalties

· Stock futures lower after G20 drops free-trade pledge

· Greece set to miss another deadline for bailout funds



Class III, Cheese, and Whey

Class III and cheese futures rallied on Friday with a firm cash market for cheese. The 2nd quarter Class III pack was up 28 cents to $15.51, still well above the current spot values. The Class III rally was on relatively moderate volumes of 1,454 futures, while open interest only rose by 103 contracts. There was likely a good mix of short-covering and some new buy side interest late last week, but the key issue is that the nearby contracts finished some 50 cents off their lows last week.

Despite the harsh winter conditions in the Western US cheese plants have managed to run at full capacity adding pressure to the cheese market. Spring flush is expected to come on strong especially as some states like Texas, and Michigan have continued adding cows. The Midwest processing capacity is being tested as there is plenty of milk looking for a home throughout the region and from the North East. Finally, there are signs production in California is ramping up as well this month. February’s USDA milk production report will be released today at 2pm. We’re looking for an increase on the order of 2.7% for the U.S. number and up 2.9% for 23-states.

So that’s the abridged supply story. Demand remains more unknown at this time. Spot blocks moved up 4 cents Friday to $1.40 on 7 trades (and 5 unfilled bids). Barrels clawed up 1.50 cents on 10 trades. No matter the supply side of the equation, we think the interesting part this week will be to see what kind of demand these lower cheese levels bring to the forefront of discussions. We expect that demand for cheese will become more robust around current levels this week.

The dry whey market was mixed although mostly firm in the front month futures. There is an expectation more dry whey production will hit the market in Q2 as the wpc markets are softening. WPC34 specifically is challenged by the weak NFDM markets. Feed buyers will start switching to NFDM in their formulas to substitute the higher priced whey proteins.

April-June Daily Class III Chart:


We look for a mixed/mostly-firm opening for Class III, Cheese and Dry Whey.

NFDM & Butter

The spot NFDM firmed up by 1 cent to 80.50 cents with no trades. The NFDM futures were mostly higher on small volumes. The market may be more concerned with tomorrow’s GDT auction as a total of 14,635mt of WMP will be offered, up 9.7% from the last event. There will be 3,755mt of SMP offered, up 2.7% from the last auction. The 12 month WMP forecasted volumes remain unchanged at 342,640mt, while the 12 month forecast for SMP was marginally lower at 101,565mt. Offers of SMP into Mexico have been aggressive lately from US exporters. EU SMP exports for January fell 8% to 57,021mt, with sluggish sales to Egypt, and nothing impressive for Algeria as the crude oil market continues to add headwinds to the region’s economy. Overall EU exports look healthy to South East Asia markets. Germany was the leading origin of exports at 15,910mt, ahead of France with 12,304mt, and Belgium with 7,040mt.


The spot butter market was up 2 cents to $2.13 on 7 trades. The forward curve on butter seems reluctant to shed much premium compared to the spot prices. This may be because many buyers are comfortable buying in the $2-2.15 range with their budgets, and this would make an argument we can continue seeing support coming into the summer months. Although there has been anecdotal reports some end users have been buying hand to mouth expecting the market to soften.

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


The corn markets were quiet Friday with a tight trading range with no main features of the day. Traders will be positioning themselves for next Friday’s USDA March 31st Prospective Plantings report. Friday’s CFTC report showed funds sold 114,372 corn futures, and now the funds are now net short 27,352 contracts as of last Tuesday’s close. See the charts below comparing the fund’s activity with the price action.

The CFTC showed funds in soybeans trimmed their longs back by 30,521 contracts, and are now net long 93,544. Soybeans may be prone to more weakness if prospects of South America’s crops continue to impress, with Mato Grosso’s soybean harvest now over 95% complete. Chinese crush margins are at about break evens to slightly negative. The managed money bulls may need to pull back their long positions especially if we see a big switch in acres into beans in next week’s USDA report.



Calls are for a modestly higher opening on grains and beans this morning.


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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