Morning Dairy Comments, 04/04/2017

Tuesday, April 4, 2017


General Market News

· Qatar to drill in world’s biggest gas field after 12-year freeze https://goo.gl/pNKK3l

· Wall Street expected to open lower; investors await Trump and Xi meeting https://goo.gl/citVd0

· ‘Innovative financing’ sours dairy giant in China’s rural northeast https://goo.gl/ybAJRS

· U.S. trade deficit drops 10% in February https://goo.gl/iXcomy

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Class III, Cheese, and Whey

Class III and cheese futures opened quietly and mostly lower to start off the month of April, but regained some strength after the spot call yesterday. Class III volume was skewed to the nearby April contract. Of the 1,145 contracts that traded, 600 traded in the April contract alone. Open interest in that month rose 86 contracts. In fact, Class III open interest rose 242 contracts yesterday while cheese futures (which traded 403 contracts) fell by 81. We think there’s been some short-covering going on, but there has yet to be any mass exodus of short positions put on in February or early March. Perhaps we won’t see that happen. Sentiment is still widely negative on price as we enter April. But if history is our guide, as futures prices rise the chances of sparking a short-covering rally increase. But spot will have to continue to be well supported in the near-term to incite any worry from the shorts.

Spot cheese continued to climb yesterday into continued good sell side liquidity as 10 loads of barrel cheese traded to finished 2.5 cents higher on the day. Block cheese traded one time only and finished a penny higher. Over the past 3 days, 44 loads of barrel cheese have traded at the exchange. The last time we traded over 40 loads of barrel cheese in 3 day was in mid-November 2016 when 41 loads traded (the price at that time was high $1.60s to mid-$1.70s).

We've heard and commented the demand for cheese (both domestic and to some degree export orders for spot loads) improved over the past week or so. Now market participants are wondering how much more upside is warranted as we slosh around in discounted milk during seasonal milk flush.

We’ll wait to see what the tone is out of the GDT auction this morning. Expectations for modestly lower seemed to be most prevalent, but it’s looking more stable so far.

Dry whey is getting a mixed start this morning. We anticipate a sideways trade, but that the dry whey market is still fundamentally well supported today. From a technical perspective, dry whey looks to have bottomed about two weeks ago and continues to push – albeit somewhat quietly – to the upside. Not much fanfare here. Just steady increased in price, which we expect will continue this week.

July Dry Whey – Daily Chart

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NFDM & Butter

NFDM finished mixed/mostly firm yesterday on light volume as the sideways consolidation continues. The market is quiet this morning waiting for news from GDT auction, which looks to be somewhat mixed so far. Overall, nearby US NFDM remains some of the cheapest in the world.

Butter futures firmed again yesterday. Spot rose 2 cents to $2.1275, but it was further down the futures forward curve that caught the attention of buyers. June and July both finished up 3 cents and 115 of the 224 contracts that traded yesterday occurred in the Q3 timeframe. End-users continue to seek coverage in the second half and the market is well supported to start again today.

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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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