Morning Dairy Comments, 07/28/2017

Friday, July 28, 2017

General Market News

  • Europe’s butter mountain has melted away
  • Danone signals faster sales growth in 2nd half
  • U.S. economy expanded at solid 2.6% rate in 2nd quarter
  • NZ carbon budgets would provide ‘certainty’ for dairy sector
  • After 20 hours of deliberation, Senate Republicans failed to pass a “skinny” plan to repeal Obamacare with John McCain casting the decisive no vote.
  • Amazon totally missed earnings estimates reporting $0.40/ share vs. $1.42
  • Too much weed in California!  Reports show Marijuana producers in the Golden state have grown 8x the amount needed for consumption.

Class III & Cheese

Class III and Cheese futures showed resilience during yesterday’s trade as early weakness turned upward by midday. A few different aspects were at play for the intraday trade: (1) blocks firmed slightly to $1.7150 – the highest level in nearly 2 months (on June 1 the price was higher), (2) Butter futures traded sharply higher ahead of spot and held gains as that market looks to be breaking out to the upside now, and (3) 2017 Dry Whey futures firmed even as NFDM took the worst pounding in weeks.
There may have been other contributing factors, such as technical support that held – which seems to have kept bids moderately active in 2017 Class III and Cheese futures throughout the day. There were also several hundred September Class III options that traded on a 1 by 2 basis. The $17.00 calls traded against the $17.50 calls (1x2) for EVEN money. This may have brought in a bid of buy side activity to the September futures throughout the day as well.

Ultimately we’re looking at markets, which have recovered recent mid-July losses this week, that look poised to recover more – particularly if spot cheese continues to find regular bids around current levels. While the block price around $1.70 seems valid to us, the real questions linger around barrels.
There is still plenty of fresh barrels in the country (and some of those have made their way to the exchange this week with 17 loads trading vs. 1 block load), but this week’s “slow as you go” buy side for barrels seems here for a reason and likely willing to own more in the $1.40s. In other words, we know better than to call a big bounce for barrels in any particular morning comment we write – but we feel fairly confident that downside for barrels is very limited right now.

We look for Class III, Cheese to open steady-lower, Dry Whey mixed.











UP ¾




















UP 6 ¼




NFDM & Butter

Just when we thought the seller aggression was toned down in NFDM, they came out swinging Thursday. Spot NFDM fell 0.75 to .8525 on 8 trades. NFDM futures fell early and often Thursday as prices moved, in some cases, more than 2 cents lower through the first half of 2018 on sharp volume (450 contracts). This was a full-retest of the June lows and the telling story here is that prices rebounded by the end of the day and finished off their lows. It’s too early to call a bottom per se, but that type of action is telling – particularly as open interest dropped 54 contracts yesterday. That may not tell an interesting story, but it does tell us that the sell side was not necessarily adding a boatload of NEW short positions – but in fact lightening their longs a bit. Markets tend to shake off the early adopters looking for a trend change from time to time and we’ll see if this is the case here by watching direction over the next few weeks. For now, we’re looking for a mixed trade early today.

The butter market caught a bid yesterday as futures were strong out of the gate, which was followed by a 6.25 cent increase in the spot price. 13 spot loads traded to bring the total so far this week to 29 loads. On top of this, after several weeks of consolidation the butter futures market looks to be breaking out of recent ranges to the upside. How much more strength is in store? We think the $2.70 mark will be targeted, but looking at the spot chart below we have ideas of $2.80 in play as well. We shall see, but fresh strength became apparent yesterday and that’s the key takeaway at the moment.

Butter – Weekly Chart


Fonterra volumes offered for next week’s GDT event TE193 were released yesterday and all products saw volumes unchanged on forecast but increased on TE192 as per the seasonal trend.

WMP sees 17,250 tonnes on offer for next week’s event, up 17.9% on TE192. Volumes are increased by 2,615 compared with TE192 as C2-C5 see volumes  increased by 1,500 tonnes (+33.3%); 800 tonnes (+20.0%); 25 tonnes (+0.7%) and 290 tonnes (13.9%) respectively.

The cream group also sees volumes unchanged on the forecast for TE193 but like WMP and SMP, volumes increase on TE192. 4,785 tonnes of milkfat will be offered next week, up 1,040 tonnes (27.8%) on TE192 with C1 increased by 130 tonnes over TE192 (+96.3%); C2 increased by 465 tonnes (+41.2%); C3 upped by 265 tonnes (28.2%); while C5 was increased by 180 tonnes (+20.2%). The 12-month forecast for the cream group is unchanged at 102,685 tonnes.

We look for Class IV, NFDM and Butter to open mixed-steady.


The corn market faces the prospects of overall declining crop conditions as the rains of late have skirted some of the more arid regions with the latest weather models are calling for drier conditions in the coming days.  Weekly exports sales reported yesterday fell short of expectations while season to date sales slightly below the USDA’s estimate.       


Recent rains have benefited the soybean crop while forecasts looking two weeks out are projecting cooler and drier conditions. Weekly export sales figures helped to underpin values yesterday as commitments are running 8.4 mmt ahead of last year’s pace.  At the current rate of sales, soybean exports are projected to best the USDA’s estimate by 1.1 mmt. 

Wheat futures firmed as the spring wheat drought area has expanded while a wheat crop tour is reporting smaller yields.  Over 53% of the spring wheat region is contending with at least a moderate drought. Weekly export sales bested expectations while season to date sales are in line with the USDA’s projections. 

Grains are opening modestly higher this morning.


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