Morning Dairy Comments, 03/02/2016

Wednesday, March 2, 2016

General Market News

· New Zealand’s Commerce Commission confirms that the dairy industry should continue to be regulated

· Moody’s cuts China credit rating outlook to negative

· Trump and Clinton each win seven states, solidifying themselves as the presidential nominee frontrunners

· Whole Foods announces nationwide recall of Maytag Raw Milk Blue Cheese



Class III, Cheese & Dry Whey

A three-day bounce for class III and cheese ended abruptly yesterday as sell side interest dialed up during the spot session.  Spot block fell 2.00 cents to $1.4600 while barrels dropped 2.25 cents to finish at $1.4325 – hardly a precipitous decline.  But with little else in the way of news to keep futures propped up, aggressive selling returned on rising trade volumes and open interest.  Over 1,755 class III and 1,243 cheese contracts traded hands as prices revisited – or made new – pricing lows. The 2017 contracts also moved lower, which has become somewhat commonplace over the past month.  The January to December class III pack average finished yesterday at $15.49 while the 2017 cheese average broke below $1.70 for the first time – settling at $1.6950.  2017 class III has lost about 40 cents since February 2, while that cheese average has declined by 4.9 cents.

The combination of trading behavior (more volume on down days), price direction and the ability to make new lows is all rather bearish of these markets right now.  The brief uptick in spot pricing to close out February has met its match as fresh cheese continues to be, by and large, available.  We’re not sure if this new sell interest will be what it takes to push below $1.40 especially as we expect that buyers will continue to source spot loads of cheese here in the mid-$1.40’s, but the market feels heavy.   

Dry whey prices showed some firming action throughout the day but faded slightly by the close finishing steady/mixed on light volume. We expect more sideways action from the dry whey market today.

The Class 4b price for the month of February was announced yesterday at $13.05, down $0.03 from January whole $0.73 lower year over year. 

We look for Class III and cheese to open higher, whey to open steady.


Spot Session Results


















DOWN 2 ¼ 







UP ½  












NFDM, Butter, and NZX Futures

The firmness of price during the early portion of yesterday’s trading session for both the NFDM and butter futures wilted as the market digested the results of the GDT auction and the performance of the spot markets, leading both markets to finish mostly in the red.  The gains tallied in the WMP and SMP during the GDT event had been mostly anticipated by market participants as NFDM futures had been grinding higher in the days leading up to the auction.  In a market that is continually dealing with a vastly burdensome global supply, the rise in the GDT values was not enough to offset the bearish fundamentals of the powder complex, leading to NFDM futures closing out the session with the February through October contracts settling between unchanged and 0.975 cents lower.  The November and December contracts managed gains of 0.775 and 0.600 cents respectively, though these contracts generated minimal trading activity.  The NFDM market faces stout bearish headwinds for the foreseeable future, where any continued rise in values should be thwarted by sell side interests capitalizing on the forward curve as we approach the release of the Dairy Products Report for the month of January tomorrow.   

The CWAP released yesterday posted a marginal week over week decline of $0.0027 (0.3%) to $0.7762.  Weekly sales were estimated to have decreased by 2.4% from the week prior to 6,337,795 pounds. 

The butter futures succumbed to the duel bearish influences of the GDT auction results and the 0.75 cent decline posted during the spot session as futures settled for the day unchanged to 2.500 cents lower.  The April through July contracts suffered the largest declines, falling between 1.025 to 2.500 cents lower, as the once stalwart butter market finds itself on shaky ground amid growing inventory levels.  For tomorrow’s Dairy Products Report we look for another increase in supply, with our forecast calling for a month over month increase of 10.5 million pounds (6.0%) to 187.6 million pounds which would put January of 2016 up 4.5% year over year. 

The Class 4a price for the month of February was announced at $13.28, up $0.02 from January while $0.18 lower than February of last year.       

We look for the butter and non-fat to open firm.



The grain markets all moved in concert yesterday, settling in the red on the improving prospects for global production.  The corn futures were pulled reluctantly lower as export prospects are waning due to currency volatility.  The Argentina peso is making record lows against the Dollar, giving Argentina the advantage for corn offerings into East Asia.  The May corn contract settled 1.25 cents lower to 355.75 while the July contract slid 1.50 cents lower to 360.50.  Crop insurance levels were officially set at the close of yesterday’s trade with the base price for corn at $3.86 and $8.85 for soybeans, both of which are under the total cost of production.

The soybean futures were under pressure as the prospects for improving global production levels continue to limit upside price action.  Brazil announced total soybean exports in February of 2.036 mmt, more than twice the volume exported during the same month last year.  The May soybean contract fell 3.00 cents lower to settle at 858.00 as the July contract shed 3.75 cents to close out at 863.75. 

We expect corn and wheat and soybeans to open moderately higher.

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