Morning Dairy Comments, 03/28/2017

Tuesday, March 28, 2017

General Market News

· China’s Huishan dairy confirms it missed interest payments

· N.H. dairy farms deal with threat of labor deportations

· Dollar steadies as markets look beyond Trump’s policy stumble

· Congress gears up for fight over spending after failure of health-care bill

· Trump to cancel Obama policies aimed at Paris Climate pledge

Class III, Cheese, and Whey

There is no need to make yesterday activity or lack thereof a mountain out of a molehill. In light of that we will try to keep this short. Class III and Cheese futures traded both sides of unchanged on a mixed spot session. The Class III equivalent futures prices and futures seem to be inline, with a slight carry premium built into the market as expected. This equilibrium has shrunk volatility quickly, with the trading range the last 2 day average only 25 cents, compared to the almost 50 cents seen earlier last week. Barring any unforeseen fundamental shift or black swan event, spot and futures might hang out around their current levels today.

Cooperative Working Together (CWT) announced yesterday they have accepted the request to assist in exporting 2.4 mil lbs of cheese and 52,360 lbs of butter to Asia and Oceania during the Mar-Jun timeframe.

With cheese stocks still heavy, we’d expect any spot buy side interest to be met by willing sellers today. As block cheese has found at least a momentary bid here in Chicago, the question we ought to be asking ourselves is whether or not we can see demand for barrels pick up as we begin the month of April. Typically we’ll see some new barrel demand start by the end of April – beginning of May. Will this year be any different? We don’t know. But would expect that each day that ticks off without new lows being made is one more day closer to establishing some sort of bottom for cheese.

NFDM & Butter

NFDM experienced some decent volume on a mostly lower trade yesterday. The trend for both the domestic and international markets remain lower. The dollar made fresh 2017 lows yesterday and should eventually support commodities as a whole, but with a mountain of supply it might be some time before NFDM can turn the charts bullish - especially if exports that would normally be coming from the U.S. are being booking below $0.80/lb. continue.  

The majority of yesterday’s trading activity in butter was in Jul-Nov 17 time frame as the spot market moved up just ¼ cent on 1 trade to $2.10/lb. providing little insight to the nearby contracts on price direction. Since the start of March, spot butter has shed 12 ½ cents, which is uncommon leading up to the Easter holiday. The market inability to post gains during a time of above normal consumption points to the current oversupply of fat the market is experience right now. However, with annual butter consumption nearing a 50 year high, and projected to increase 8% this year, inventories can be drawn down quickly, which should support the market above $2.00/lb. 


Corn closed mixed yesterday despite export inspection coming in close to a marketing year high. Funds were net sellers yesterday, selling an additional 6,000 contracts. Friday’s CFTC report showed managed money’s position as of last Tuesday, short -84,118 contracts, compared to the estimated -27.353 contracts. Including this week’s estimates put the funds net short 101k ahead of the USDA’s acreage and stocks report on Friday. Bean inspection came in on the lower end of trade expectations, but remain ahead of the USDA’s cumulative estimates. The mounting crop in SA has had its way with futures as of late, as the May contract as shed $1/bu. during the last month. Leading up to Friday’s report, we should see a sideways traders positions themselves.

The grain and bean story for the month of March has been big supplies and speculative fund sell-side pressure. CFTC data shows that shows that the speculative hedge funds went from net long 327 million to net short 388 million bushels of corn over the past two weeks of data. As for soybeans, they went from net long 518 million to net long 166 million bushels.
Will this continue in April? We don’t know, but the market has given you a new opportunity to layer in more coverage ahead of planting/weather/problems that often arise during the growing season. If you’re an end-user and you need additional upside protection on grains or protein, you have the green light.

December 2017 Corn - Monthly Chart



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