Morning Dairy Comments, 04/21/2017

Friday, April 21, 2017


General Market News

  • Equites rallied sharply yesterday with the Dow up 174 points
  • After the big rally yesterday more good news this morning from earnings reports with GE & Honeywell both toping profit expectations
  • French election results due out on Sunday
  • NZ dairy farmers hope for mild winter: https://goo.gl/C5o4Dx
  • Irish Dairy co-op posts 6% increase in profits; https://goo.gl/hpHcjZ

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Class III, Cheese, and Whey

The class III market continues to oscillate and yesterday was an up day within our recent trading range. Perhaps some light profit taking took place from the shorts with futures approaching the lows & ahead of the milk production report which was released at 2 pm, analysis below. Volume was relatively light coming in just shy of 1,000 contracts. And while nearby months saw some sizable gains, May +15, June +18, the deferred contracts were more subdued in their rallies up 4 to 8 cents from July through December. The strength in the dry whey market continues to provide a boost to the class III futures as despite very light volume of just 21 trades futures were steady to +1.200 cents on the day. With the dry products we’ve very curious to hear the tone of the market at next week’s ADPI event. It certainly seems to us that the higher protein concentrate products have good demand and thus we find it interesting to see such a sharply backwardated forward curve for dry whey. Certainly, those two markets can separate but protein moving into those products limits the supply availability of dry whey.

Cheese futures were mostly in line with the rallies seen across class III as settlements ranged from steady to +0.012 higher on the day. April however closed down 0.006 cents as NDPSR came in a bit below the markets expectations. Cold storage is due out on Monday which will be interesting to keep an eye on given the slightly lower than expected milk production seen yesterday. We look forward to seeing many of you over the weekend and early next week. Please make sure to come say hello! 

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

Milk Production Report

The March 2017 milk production report was released today and it was slightly bullish in comparison to expectations.

Total US milk production this month came in at 18.71 billion pounds slightly below our expectation for 18.77 billion. The 1.68% increase year over year was a fairly sharp pullback from February which was up 2.3% year over year. While milk production came in shy of expectations the longer term indicators on this report tend to lean bearish as we added 15,000 cows from February which exceeded our expectation by 10,000 head. Revisions this month were done for the entire first quarter and were mild relatively speaking with a slight uptick for Jan and a slight downtick for Feb. Futures have seen little change since the report and we’d call for a slightly firmer open for tomorrow’s session. 

The 23 state milk production came in up 1.75% year over year vs. our expectation for an increase of 2.2%. However a closer look at the state by state numbers seems to show what drove the slowdown in milk production. The west coast and particularly the northwest showed the largest drops year over year. The continued big rains and winter weather in late January early February had a big impact on things for that area of the country. Oregon was down 2.4%, Washington, -2.4%, California, -2.0%, Idaho was up but only slightly by 0.8%. With the weather coming to an end and cow numbers continuing to increase again, the longer term implications of this report will likely have a more bearish lean moving forward. Offsetting some of the west coast losses in milk production was a massive bounce back from last year’s winter storms with Texas +16.4%, New Mexico, +11.6% and Kansas up 7.5% showing the largest year over year gains.

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NFDM & Butter

The NFDM market can’t decide which way to go at the moment as after Wednesday’s sell off the futures market closed mostly higher yesterday with settlements from -0.650 to +0.800 on the day. Volume was relatively firm with nearly 200 trades and continued activity in the options market as well. There are a lot of mixed tones in this market at the moment it seems. The buy side interest has certainly picked up and offered some support but we still have heavy milk production levels which means there is still to be plenty of product available. With product continuing to move into intervention despite February EU milk production coming in down 1.15% for February certainly doesn’t indicate that demand is particularly strong. Next week’s ADPI meeting will be very interesting to get a sense of how firm the market can continue to be after the recent rally.

The spot butter market dipped by ¼ of a cent yesterday but that didn’t seem to have much of an impact on futures which were very quiet with settlements from steady to +0.250 cents and volume was light with under 50 total trades. At this point a sizeable break in the market seems unlikely but there is very little reason to move higher and hence a relatively quiet session with little movement.

We expect butter to open quietly this morning with a bit of firmness for NFDM. 

Grains

Grain futures came under pressure as continued positive weather developments spread across much of the US. The wheat market led the way falling by 12.75 cents to $4.0625 in May as risk premium gets removed. Corn and soybeans followed falling by 4 cents on corn and 3.5 cents for soybeans. Weekly export reports were relatively weak across the board which did not lend any support to the softening markets. While weather thus far has been very supportive to yield potential the strong seasonal trend for risk premium to be added to the market during the summer months should be noted on the charts included below.

We look for the grains to open mixed this morning with beans up 3-5 cents while corn and wheat look to open steady to a few cents lower.

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US Milk Production Up 1.7% In March - A Monthly Record For US Production

Data released last night showed US milk collections in March totalled 8.49 million tonnes, an increase of 1.68% on last year and up 3.34% on the three year average and 4.28% ahead of the five year average for the month. This also represented the largest monthly volume of milk ever collected in the US in a single month, exceeding the previous record of 8.44 million tonnes set last May. Last month we saw February’s collections post the first y/y negative month for milk collections since December 2013, however adjusting for the leap year put February’s collections up 2.29%. Cumulative collections for the year to date now total 24.29 million tonnes, up 1.02% on the 24.04 million tonnes collected by the same point last year. A 59,000 head increased in cow numbers coupled with an increase in milk per cow from 895kg to 905kg were the drivers behind the increased production.

Weekly UK Milk Collections Start New Season in a Positive Fashion

Weekly collections data showed UK production moved into positive territory for the first time in over a year according to data released this week. Collections for the first full week of the new UK season (2nd Apr-7th Apr) totalled 301kt, up 1.09% on the same week last year (which incidentally was the only week of milk collections that posted a y/y increase last season), 0.19% ahead of the three year average and up 3.82% on the five year average for the month. Cumulative collections for the first eight days of the new UK milking season total 344kt, up 1.36% y/y. Our estimate for UK production in March is putting collections at 1.29 million tonnes, down 0.15% y/y.

Slightly Higher Milk Solids Offset Some of February's Reduced Collections

In yesterday’s February Milk Production report we referred to the fact that the drop in MS collections in February was slightly less pronounced than the fall-off in liquid collections. Weighted average milk fat content unchanged y/y at 4.14% and increased protein content, from 3.37% last year to 3.40% this year were the driver behind the increased MS collections. Total MS collections for the EU-28 in February was reported at 882kt, down 0.8% y/y on a 28-day basis compared with the 1.16% reduction in liquid collections. Of the EU’s top ten milk producing countries, Germany, France, The Netherlands, Poland, Ireland, Spain, Denmark and Belgium all saw their y/y deficit reduced or their y/y increase further extended when compared to their liquid collections for the month. The UK and Italy on the other hand saw slightly lower MS collected, which saw the UK’s y/y percentage deficit further extended in MS terms while the y/y percentage increase reported for Italian collections was tempered somewhat in MS terms.

EU Dairy Exports for February

Extra-EU butter exports in February totalled 10,445 tonnes, up slightly from the 9,282 tonnes exported in January as per the seasonal trend but down 31% from the 15,149 tonnes exported in February 2016. YTD butter exports now total 19,727 tonnes, down 25% from the 26,170 tonnes exported by the same point last year and the lowest cumulative volume of butter exported by the end of February since 2013.

Extra EU SMP exports fell again y/y in February albeit to by a smaller margin than January. Exports totalled 59,441 tonnes, down 1.8% from the 60,523 tonnes exported a year earlier but up from the 57,021 tonnes exported in January. Extra-EU SMP exports for the YTD now total 116,462 tonnes, down 5% on the same point last season and the smallest volume of SMP exported from the EU by the end of February since 2014.

Extra-EU cheese exports in February totalled 62,855 tonnes, up 3% from the 61,018 tonnes exported a year earlier and the 51,852 tonnes exported in February 2015. Exports in February also increased, if only slightly, on the 62,221 tonnes exported in January. YTD cheese exports now total 125,076 tonnes, up 8% on the 116,095 tonnes exported by the same point last year.

WMP exports in February totalled 30,859 tonnes, up 3.9% on the 29,709 tonnes exported a year earlier but down from the 31,957 tonnes exported in February 2015. This was also well down from the 35,405 tonnes exported in January. YTD WMP exports now total 66,264 tonnes, up 5% on the 63,079 tonnes exported by the same point last year.

EEX Futures

A combined 31 lots (155 tonnes) traded on EEX yesterday with 27 lots trading over butter and four lots trading over SMP. Jul17 traded the first lot of butter at €4,300; Aug17 traded the two lots, one each at €4,275 and €4,270; Oct17 traded two lots at €4,250; Nov17 traded six lots at €4,200-€4,250; Dec17 traded seven lots at €4,190-€4,250. Jan18 traded a further lot at €4,100; Feb18 traded three lots at €3,990-€4,000. Apr17 traded five lots of butter on EEX yesterday at €3,900. SMP meanwhile traded its four lots over the Aug17 and Sept17 contracts, each trading two lots per month at €1,840 and €1,830 respectively.

NZX Futures

A combined 450 lots/tonnes traded on NZX overnight with 10 lots trading over WMP and 300 lots trading over SMP. WMP traded its 10 lots over the May17 contract at $3,250, unchanged on its last traded price. SMP traded its 300 lots over the Aug17 and Sept17 contracts, each trading 150 lots at $2,160 with Aug17 down $10 and Sept17 down $40 from their respective last traded prices.

The NZX milk futures Sept18 contract traded 60 lots (360,000 kgMS) overnight settling at NZ$6.28, up NZ$0.03 on its previous settlement.


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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