Morning Dairy Comments, 03/27/2017

Monday, March 27, 2017

General Market News

· US dollar down 0.3 percent against major currencies

· Stock, dollar markets slide on doubts Trump can deliver

· Leaders from Brazil and EU to tackle meat crisis

· OPEC, non-OPEC to look at extending oil-output cut by 6 months

· US farmers seek shelter from NAFTA storm

Rob Chesler will be speaking at the International Pizza Expo in Las Vegas today - Please join if you’re going to the show!

Commodity Buying Strategies for Pizza Operators

4-5pm Monday, 3/27 room N259-N261



Class III, Cheese, and Whey

It was eerily quiet on the Class III front to wrap the week as nearby contracts saw weakness. Deferred months held firm on super-light volume, which is reflecting market fatigue and at this point, more of a cautious stance held by traders. In total, just 597 class III contracts and 209 cheese contracts traded in what was a very slow end to last week.

Blocks and barrels were able to stop their multi-week slide and are holding near the $1.40 line as current demand has been sufficient to soak up additional loads being brought to the exchange. Friday's weakness has the potential to send the nearby Q2 strip to test the recent lows. But it's a different story for the deferred timeframe as it is starting to post up a bull-flag pattern following Tuesday's sharp gains (see second half chart below). The July-December strip continues to “knock on the door” of initial levels of resistance at the 10-day moving average (yellow line). If traction can be found north of that level, it could open the trade up to further recovery towards the $17.00 mark.

July-December Class III – Daily Chart


A move like that seems to be a bit of a stretch at the moment with flush right around the corner, but fast forward a few weeks and it’s not an implausible scenario. It will likely take an uptick in demand to start the process, which could easily materialize given that the U.S. is pricing at a discount to the international market and spot is the cheapest on the board here at home.
The trade has already digested last week’s data dump, which included the 2.3% surge in milk production, a 1.7% higher overall GDT auction that saw cheddar prices fall 1% ($1.54 USD equivalent) and a mildly bearish cold storage report, which pegged total cheese stocks 6.3% higher from a year ago, at 1.257 billion pounds (full breakout of below).  With that “noise” out of the way, the focus should return to spot movement as well as weather conditions heading into flush and while current fundamentals remain bearish, the trade will remain cautious about over doing it to the downside as the risk/reward on further pressure is starting to look a bit skewed.   

Dairy Market News reports the cheddar cheese price for March 6 – 17 in Oceania at $1.6386/lb., down 10.21 cents from the previous period. The sweet whey powder price for March 6 – 17 in Western and Eastern Europe was at 50.46 cents per pound, up 0.57 cents from the previous period. For Central and West 34% whey protein concentrate, the midpoint of the mostly price was reported at 95.13 cents per pound, down 2.50 cents from the previous week.

Slaughter for the week ending March 11 was up 5.1% from a year ago, at 63,000 head, while tear-to-date slaughter levels are 0.4% lower than 2016 levels, with 625,400 head slaughtered. February monthly slaughter was up 2.3% on a daily basis from 2016, at 253,200 head and 4.2% higher than the previous month. To date in 2017, dairy cow slaughter is 1.8% above 2016 on a daily basis at 522,300 head.

We expect Class III, Cheese and Dry Whey to open mixed.

February 2017 Cold Storage


February 2017 Milk Production




NFDM & Butter

Sellers put the brakes on recovery efforts in the NFDM market as contracts through 2017 were pressured into the red on moderate volume following the pullback on spot, which featured an impressive 17 trades. Friday's weakness breaks a string of gains that saw the forward curve muscle up through technical areas of resistance on short covering and while the market did pull back to finish the week, it still remains north of support levels.

Time will tell if those areas hold as the trade considers the recent onslaught SMP has gone through over the past two GDT auctions, coupled with Mexican trade tension and chatter of additional product earmarked for intervention in the EU. The fundamentals remain decidedly bearish with the $60,000 question being much the same for NFDM as it is for cheese at this point—will price action line up with the fundamentals or is the market at levels where risk/reward for bringing additional sell pressure fading?  

Some of the answer to that question lies with the butter market and where it’s headed. The fractional downtick on Friday’s spot session didn't faze the trade as futures finished mostly in the green on moderate volume. The nearby April-May timeframe saw the largest gains, pushing a couple cents higher and leaving support levels intact in the process (see spot butter chart below). The market just shrugged at the massive build in stocks, which spiked 20% from year ago levels, to 282.6 million pounds, logging the largest January-February surge in a quarter century. Heading into month-end, the market remains well supported as spot is holding within its longer-term range and international prices continue to migrate higher, which should entice some export business if the trend continues.

Spot Butter~Daily


Dairy Market News reports that the 82% butter price for March 6 – 17 in Western and Eastern Europe was $2.0355/lb., up 6.24 cents from the previous period. Oceania’s price was $2.1489/lb., up 2.83 cents from the previous period. The SMP price for March 6 – 17 in Western and Eastern Europe was $0.8788/lb., down 2.83 cents from the previous period, while the price in Oceania was $0.9922, down 16.44 cents from the previous period.

NFDM is poised to open lower this morning, Butter and Class IV mixed.



Grain markets finished last week mixed with beans suffering a sharp, 15-cent downdraft as pressure continues almost unabated amidst a massive South American crop that's coming online, which is prompting fund managers to unwind long positions. The lead May contract has closed in the red in all but four sessions this month and could easily slide another 25 cents, back along the $9.50 mark as the trade continues to square off positions ahead of Friday’s USDA prospective plantings report, which has a history of shaking things up. 

Pressure in beans is also dragging on corn, which finished fractionally lower heading into the weekend, while wheat found some support and snapped a four-session losing streak by posting 3-4 cent gains. Estimates for next week's USDA acreage report were released on Friday afternoon with the average of surveyed analysts expecting 90.9 million acres of corn to go into the ground against 88.2 million bean acres.

Corn was up slightly overnight, beans and wheat were down 2-3 cents. We look for the markets to open mixed 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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