Morning Dairy Comments, 11/18/2015

Wednesday, November 18, 2015



General Market News

· We’d like to invite those of you attending the UDI annual meeting to stop by and visit our FCStone booth! We look forward to seeing you there

· Terror threats continue as soccer game is cancelled in Germany due to bomb threat

· Multiple Air France planes diverted overnight due to threats

· Paris apartment siege ends with 7 arrests, 2 deaths

· Equities finish slightly higher but sell off late in day as crude prices fall

· USD rises to 7 month high vs. Euro

· Gold trades to lowest level since 2010



Class III, Cheese, and Whey

The claws are sharp and the bear just keeps slashing away at both domestic and international prices with another soft GDT auction that logged an overall 7.9% lower result (see full breakout below) which triggered another downdraft in Class III and cheese futures. Couple that with soft spot action that saw blocks slip a nickel and barrels trade as low as $1.40 before bidders ramped them back to $1.45 in the waning seconds before a hard close to the session narrowed the spread to 12 cents. Despite the narrowing of the spread, there’s still work to be done which clearly has the trade on edge as indicated by yet another round of price weakness. At this juncture, the market is oversold and ripe for a “dead-cat-bounce”, however that will likely be short lived given the bearish gales that continue to blow. Fresh contract lows are being booked on a daily basis as far as nearby futures are concerned with contagion eroding the premium in that of deferred months. Below is a chart of the July-December strip, which broke two key support levels yesterday, which were the “Alamo” so to speak from a technical perspective as there is nothing to offer the market support other than the August lows at this point.

In the short term, the trade will be looking closely at Thursday’s milk production numbers in which we are   forecasting output to eke out a slight gain from a year ago in all 50 states and remain steady in the 23 states monitored monthly.  We’re looking at production in all 50 states to come in at 16.6 billion pounds, up 0.04% from a year ago with higher cow numbers contrasting with lower output per cow (see table below for breakout).

July-December Class III~Daily


We look for class III and cheese to open lower, whey steady

Class IV, Nonfat, and Butter Futures

Chronic weakness in the NFDM market continues to trump modest support in butter and took Class IV values sharply into the red as the overall bearish picture takes shape. By the closing bell contracts from January-April lost anywhere between 24 and 48 cents, leaving many to question where the bottom lies? The answer to that is at price levels where a tourniquet can be applied to the NFDM market to stop the bleeding and how long butter can stay afloat.

Yesterday’s sharp downdraft on GDT saw WMP tank 11.1% and SMP values shed 8.1% which worked to accelerate and already weak NFDM futures board, pushing Q1 contracts limit down and leaving the rest of the 2016 strip awash in red, all on heavy volume. There’s nothing in the way of technical support for the Q1 timeframe as indicated by the chart below, however we would expect to see some bottoming action if spot prices can claw back above the $0.8000 level. The CWAP index came in at 0.7988 on 10.6 million pounds for the past week.

No one wants to touch the spot butter market at current levels as the price has remained static at $2.8850 for going on two weeks now. This triggered sharply higher price action in the December contract, which is now being forced to play catch-up and also lent residual support to the bulk of 2016. With back to back record pricing, hedge activity remains active in 2016 and we are likely looking at raising the long term floor on this market as a major paradigm shift has and is occurring with natural fat intake no longer the villain. In the short run, conventional wisdom would suggest lower pricing from current levels should be in the offing but then again, most expected that downdraft to have already occurred. The futures forward curve has taken notice of this as well, with additional premium is being injected over the past month and holding in the low $1.90’s. 

January-March NFDM~Daily


We expect NFDM and butter to open steady to slightly higher.



Spot Session Results


















UP 1




















Grain markets need a story. Period. If you’re able to make it through a session without dozing off, more power to you because there are only a couple of dynamics at play here. The first being the gross underestimation of fund positioning that has consistently missed week over week. Current CFTC data reflects funds are short the entire complex with over 53,000 net in corn and close to 40,000 in beans. This could prove to actually turn into a bullish scenario if they decide to cover, which is exactly what the farmer is hoping for as this year’s harvest went straight from the field to the storage bin, effectively working basis levels higher and is starting to lend support to the futures market. Granted, there are major technical headwinds to the upside and $4.00 corn seems a bit of a stretch based on current fundamentals and the strength in the USD, however a short covering rally would likely “shake some rats off the ship”, as an esteemed colleague of mine likes to say, which could give the market enough juice to take a peek at those levels.

We look for grains to open steady to slightly higher.


GDT down a further 7.9% after yesterday’s auction

Yesterdays’ GDT auction saw a third consecutive fall, as the GDT index fell by a further 7.9%.  WMP saw the biggest fall, with the WMP index down 11% and an average winning price of $2148, followed by SMP, down 8.1% (average winning price $1850) and AMF down 5.9% (average winning price $3430). BMP, cheese, lactose and rennet casein also were also lower. Butter was the only product to show overall gains, as the index was up 5.6% and an average wining price of $2709. The total volume traded in yesterday’s event was 30,044 tonnes, down from 33,997 tonnes at the start of the month, with a total of 141 bidders.

EEX Futures

With the GDT auction yesterday, market participants on EEX were taking more of a wait and see approach. Towards the end of the session, SMP saw the sole trade with 10 lots trading at €1800.

NZX Futures

NZX futures were again a good barometer of the GDT auction, with GDT WMP came in close to the previous night’s NZX settlement. Overnight trade  saw some mixed trade, but no big movements as market participants seem more comfortable with current levels.

A total of 630 lots of WMP traded,  340 of which traded for Dec15 which edged  $10, lower to $2060. Jan16 and Feb16 traded $60-$70 higher on a combined 200 lots while Mar16 finished down $15 with 80 lots traded. NZX SMP also saw some volume  yesterday with 65 lots trading between Jan16 and Feb16, down $50 and $80 respectively.

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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