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Morning Dairy Comments, 03/29/2017

Wednesday, March 29, 2017


General Market News

· British PM May fires starting gun for Brexit https://goo.gl/pqzyq8

· FrieslandCampina says China JV with Huishan Dairy operational https://goo.gl/8DeqbJ

· Michigan companies investing $173m in dairy plant https://goo.gl/QPI0cc

· British PM May fires starting gun for Brexit https://goo.gl/pqzyq8

  • Canada announced it will legalize marijuana for Canadians over the age of 18 beginning July 1, 2018

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Class III, Cheese, and Whey

A steady spot market didn’t stop Class III and Cheese futures from taking to the upside yesterday. The bounce may have been inspired by a few things (dry whey firming, some technical inspired buying, some short-covering), but the key ingredient to yesterday’s trade in our opinion was the lack of new sellers into a lofty forward curve. Said another way, those who want to be short are already short. The market either needs some new bearish news to drive new sell side interest or chop along in a bottoming fashion, which is what appears to be happening.

We still have much of the season’s flush out ahead of us, but much of that may already be accounted for. The key to direction right now seems to be focusing slightly more on the demand side of the equation. We hear chatter of increased exports recently, but not long-term deals. Deals on spot month, not much in the way of deals through year end. The forward curve, which shows Cheese prices just over $1.70, appears just too rich relative to the news of the day to entice longer commitments. But we do expect that rhetoric to change this year.

US prices have been lower than Oceania for three consecutive months. We haven’t seen that since the first quarter of 2015 and we saw a subsequent spike in exports at that time, so a big jump in exports coming from the models makes sense when you look at the history. We have total cheese exports for 2017 up 27% from 2016, coming in just shy of the record high in 2014.

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We shall see how things unfold here. But the overall point is that the futures market seems to be running headlong into a lack of fresh selling amid growing questions around export demand, which is set up to be legitimate this year. Although the US dollar is still strong, the currency is going through a period of cooling off and that may help exports if that continues in Q2. 

Meanwhile, US consumer confidence hit 125.6 in March, which is its highest level since December 2000. Is that bearish cheese? We don’t know if it’s indicative of strong enough demand to sop up excesses that exist today, but it’s not bearish. Interestingly, most analysts expected the rating would drop in March because spending activity was somewhat lackluster in March. So we will see how this goes, but it’s worth keeping in mind as we watch for signs of increased consumer spending.

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NFDM & Butter

NFDM futures continue to chop sideways here as modest short-covering mixes with a market seemingly has little fundamental reason to bounce. NZX futures too are sideways a little lower.  We expect more of the same here today for US powder as the market continues to search for direction.
CWAP didn’t offer much in the way of news except maybe for volume traded. First, the price dropped 1.4% to $0.8308. Nothing much to see there. But, folks, the volumes lately are really impressive. Over 21 million lbs. were sold last week. Over 56 million lbs. of powder been reported in CWAP over the past three weeks. We got close to that at the end of April last year (about 52 million lbs. traded over three weeks then) before the prices started to rise (albeit very slowly) into the summer months.

Butter futures were mixed yesterday on light volume. The market is paused here at the $2.10 level as thoughts are mixed. On one hand everywhere you turn there some new story of butter demand here and abroad. Prices abroad remain firm too, which aids some moderate buyer worry. On the flip side, we’ve got milk, we’ve got good components in that milk, and we’re making more butter with that milk. That side of the story could continue to pressure butter prices in the near-term.

Grains

Corn futures found a modicum of support yesterday as market participants look to square up their positions ahead of Friday’s big report.  Funds are estimated to hold a short position of roughly 100,000 contracts while producers have been wary of selling their crops at these currently depressed price levels, leading to the firming of basis. The soybean market is struggling to find a bullish story to ignite a price rally as Chinese buying interest has slowed. The basis in Argentina is declining which will pressure U.S. and Brazilian prices to remain competitive for export demand.  Wheat futures experienced a faltering rally yesterday as weather forecasts are calling for beneficial rains to move into the driest parts of the Western Plains. The breadth of coverage and rainfall totals will be closely monitored as the extended forecasts look for weather patterns to shift back to warm and dry. 

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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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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