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Morning Dairy Comments, 04/18/2017

Tuesday, April 18, 2017


General Market News

· USDA asked to purchase cheese, butter https://goo.gl/MIT09z

· Oil prices fall on Saudi Minister’s view of output deal https://goo.gl/aSyP17

· Britain’s May seeks snap election to boost Brexit hand https://goo.gl/ljgAwL

· Fonterra’s NZMP non-GMO ingredients part of plan to make dairy nutrition accessible to the world https://goo.gl/Yd4rgO

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Class III, Cheese, and Whey

The post-Easter holiday trade was nearly one for the record book – at least the record book that includes the Top 10 slowest trading days in 2017. Class III and cheese futures both posted the second lowest volume trades of the year yesterday. Maybe it was the result of slow-moving market participation following the Easter holiday. Perhaps Spring Breaks are still in full swing. Or maybe it’s a “porridge is just right” story. We’ll go a mixture of all three.

The phones we’re rather quiet following the Easter holiday. People are taking time to get back to work and those stores and places that need to refill their pipeline are likely still figuring out how sales during the Easter weekend went. On the other hand, there’s not much incentive to move futures, which have come in line nicely with current spot valuations. The prevailing consensus seems to call for lower cheese prices, but spot keeps trucking along with remarkable stability.

Barrels cheese has sat unchanged at $1.4275 since closing there on April 10. 31 loads of barrel cheese have traded at $1.4275 in the following 4 trading sessions. Meanwhile futures have moved to close any type of material nearby premium with spot prices – perched and waiting for the other shoe full of cheese to drop.

But that shoe hasn’t dropped. Demand remains good and prices in the low $1.40’s look agreeable for this time of year. There’s a good two-sided trade in the $1.40s (for barrels at least). We have plenty of milk, but it’s not all going to barrel cheese production. Or block cheese production for that matter. We only have so much commodity cheddar capacity and each day we don’t move lower is one more day closer to the seasonal barrel demand uptick we typically see develop in April and May.
That demand and our current take are not necessarily bullish arguments. But unless we start to see some movement lower on spot, the futures markets (at least the nearby futures) do not have much meat on the bone. Although it seems unlikely, that means the price risk from here seems to be to the upside.

The GDT auction is underway this morning, which we expect will be modestly higher. The USDA will deliver its March Milk Production report on Thursday afternoon and Cold Storage next Monday. Next Sunday the ADPI (American Dairy Products Institute) will kick-off its annual meeting at the Marriott in Chicago. So we have a host of new data points and a lot of opportunity for market discussions in the next week and we will report on all of it. With that said, it will likely be some time before we have another slow day like yesterday.

We expect Class III and cheese to open lower this morning, whey steady.

 

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NFDM & Butter

NFDM futures slid lower yesterday ahead of today’s GDT auction, while values decreasing by as much as nearly a penny, during a relatively quiet trading session.  The NFDM market remains on precarious footing as US values seem to be discounting the acceleration of EU product moving into intervention and the overall bearish overtones of the market.  The rise in the spot price has limited the potential for the cash and carry trade in the nearby months while setting up the potential for price moves of a larger magnitude experienced over the past month. 

Butter futures were pressured lower in part by the weakness of the spot session, which fell 1.25 cents lower to $2.0750.  The June through October months garnered the largest trading interest, accounting for 177 of the 197 total trades, as prices throughout 2017 fell between 0.250 and 1.575 cents lower. 

We look for NFDM and butter to open lower. 

Grains

Corn futures fell nearly five cents lower yesterday as improving weather forecasts and an anticipated larger than projected carryout weighed on values.  Forecasted rainfall was less extensive across the Midwest allowing for more planting progress as 6% of the corn crop is projected to be in the ground, up 3% from the week prior while 3% behind the 5-year average.  The 10-day weather models are trending towards drier conditions which should aid the rate of plantings.  Funds were estimated to have sold 9,000 contracts throughout the day.

Soybean futures drifted marginally lower after the bearish results of the NOPA crush report were released.  The NOPA crush was announced at 153.06 million bushels, nearly 3.7 million below the average trade estimate of 156.7 mbu.  The lower than expected figure for the month of March would now imply an annual crush of 1920 mln bushels, 20 million below the latest USDA estimate.  The report allows indicated that domestic meal use is unseasonably weak while exports have been exceptionally strong.    

We expect the grain complex to open lower.  

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