Morning Dairy Comments, 10/28/2015

Wednesday, October 28, 2015

General Market News

· House Republicans begin impeachment against IRS chief

· Snyder's-Lance to buy Diamond Foods in $1.91 billion deal

· Apple 4th quarter earnings beat expectations

· Panera Bread's profits decline as spending grows

· NMPF seeking CWT extension through December 2018

· Restaurant Brands' Sales Rise at Burger King and Tim Hortons



Class III, Cheese, and Whey

Class III futures continued in the footsteps of their recent trend, oscillating around current price levels as market participants are lulled into a relaxed state. Contracts through the end of 2016 traded from down 4 cent to 7 higher with less than 500 contracts changing hands.  The Class III options market proved to be more active as 584 put options and 174 call options traded with open interest growing by 351 on the put side and 139 in the calls. 

In times like these, with minimal price volatility in the futures contracts, option premiums for either puts or calls become more reasonably priced as expectations towards the magnitude of future price fluctuations diminishes. Options with strike prices outside the recent trading ranges are viewed as having a lower probability of finishing in-the-money therefore possessing a lower premium than during volatile periods.

The cheese futures finished the day's trade with contracts settling between 0.7 cents lower and 0.7 cents higher, shaking off the 3 cent decline in the spot Barrel price seemingly content to maintain the status quo of relative price stability. 
In general, cheese demand remains rather stable, but the marketplace is inundated with a host of bearish fundamental stories and insights pertaining to the global dairy markets. How long the domestic demand that has bolstered prices can hold out against increasingly burdensome supplies is anyone's guess. If taking into account yesterday's trading activity in the Class III put options is any indication you could assume that the negative factors of the global markets will ride roughshod over U.S cheese prices sooner rather than later. Still, for today the cheese and other domestic dairy markets seem impervious to factors outside our nation's borders and continue to grind along.

We look for class III, cheese and whey to open mixed.

Spot Session Results
































UP 5




Class IV, Nonfat, and Butter Futures

Class IV futures shook off the stark gains in the fourth quarter butter futures tallied after the conclusion of the spot sessions to remain mostly unchanged on the day.  Butter futures posted gains in the November and December 2015 contracts of 2 and 5 cents respectively after the spot butter price leapt 5 cents higher, yet besides a trickledown effect raising the January contract 1.150 cents higher, most contracts through 2016 remained relatively stable.  NFDM futures continued yesterday's trend of muted price volatility as contracts settled between unchanged and 0.900 cents lower, though the NFDM call options saw a flurry of trading activity with 276 contracts trading.  Open interest for the call options increased by just 63 total contracts alluding to a majority of these market participants closing out positions rather than establishing new ones to protect against anticipated future price gains.  

We expect a mostly lower opening for NFDM and a mixed opening for Butter and Class IV.

NZX Markets

NZX futures were mostly unchanged Tuesday with SMP and AMF trading lower while the other markets remained unchanged.  SMP traded $70/MT lower with 100 contracts traded in the December contract to $2,100/MT while the January contract remained unchanged with 60 contracts traded.  The November AMF contract traded $50/MT lower to $3,850 on 20 total trades while the March contract fell $100/MT to $3,900/MT as 20 contracts changed hands. 

SMP sold for its lowest price of the year during the latest event on the Indian dairy product auction platform Dairy Trade India while unsalted butter sold at its second highest price level of the year.  During the event yesterday SMP sold for $2,120/ton, down 11% from the previous event, compared to $2,178 price during the latest GDT auction.  For comparison U.S. SMP is currently priced around $2,112/ton while EU SMP is at $2,048/ton.  


The latest figures released DCANZ show New Zealand milk collections for September totaled 2.55mmt, a 7.5% reduction on September 2014. The reduction of 7.5% for NZ monthly collections for was slightly less than anticipated based on values released by Fonterra in recent weeks which showed their September collections for NZ had fallen by 9%. 

The effects of El Nino are beginning to emerge as unfavorable pasture growth conditions and low milk prices weigh on production while Rabobank is forecasting a 99% chance of El Nino hitting the country through December.  New Zealand's National Institute of Water and Atmospheric Research (NIWA) ranks the current pattern as strong as the super El Nino's experienced in 1982-83 and 1997-98.


The grain markets were unable to build momentum on yesterday's price action as soybean contracts moved higher while the corn and wheat markets faltered.  The soybean market pushed higher on the prospects of end-user and China demand as funds were thought to have purchased 5,000 contracts, with a net short position now of just over 1,000 contracts.  Sub-$9 soybeans will continue to draw demand with some trade talk of China bean imports reaching 80-83 million metric tonnes, versus the USDA forecast of 79 MT, as import/crush margins are still favorable. 

The corn market was unable to maintain its early session gains on the back of the strength of the early wheat market rally as talk of Brazilian corn headed into the U.S. weighed on market sentiment.  Despite the abundance of corn available during the harvest, U.S. corn is priced at an uncompetitive level on the global stage.  Funds played a part in the price decline, selling an estimated 11,000 contracts for the day.  The wheat market began the day with an impressive rally, spiking into resistance provided by the 100-day moving average for the December contract, yet this resilient resistance level has held firm, capping yesterday's rally while acting as a significant deterrent to future price rallies. 

The newest federal budget proposal includes a $3 billion cut to the federal crop insurance program which if implemented could have dramatic impacts crop farmers.  The budget must still be approved by the House of Representatives and the Senate, yet the proposed cuts has sent shockwaves throughout the ag industry as crop insurance has dealt with $12 billion in cuts since 2008.

Look for Corn, Soybeans and Wheat to all open 1-5 lower.



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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