Morning Dairy Comments, 10/04/2016

Tuesday, October 4, 2016

General Market News

· Hurricane Matthew to cause dangerous conditions along southeastern US coast

· Pound carves out 3-decade low as Brexit fears resurface

· Darden Restaurants raises outlook on Olive Garden strength

· NZX head to leave at end of the year

· Reviving Japan’s dairy industry, one milking robot at a time

· Milk tap will be slow to run back on



Class III, Cheese & Whey

Modest gains from Friday were erased Monday after sell side pressure resumed during the spot market. 6 more barrels were sold, sending the price 2 ¼ cents lower to 1.4875/lb. Blocks went unchanged at $1.5325. The move lower on spot caused weakness in the nearby Class III and Cheese futures, but ultimately last week’s price lows have held. The market is really very sideways here and the sentiment is mixed. Producers are securing a little more coverage than they did a week ago, but remain largely quiet. Buyers generally like the prices well into next year, but there is little worry that they won’t get them lately. So the futures markets kind of slunk along looking for some reason not to.

September futures contract expires today; preliminary settlement is at $16.39/cwt.  So far the average September NDPSR price for blocks and barrels are $1.75/lb. and $1.71/lb. respectively. Compared to the average weekly spot price last week of $1.5365/lb. for blocks and $1.481/lb. Spot cheese is in need of a rally or the October Futures price of $15.16/cwt. needs to align more closely to its spot equivalent of $14.35/cwt. We tend to think that the selling of loads on spot may be slowing down in the coming days and prices should slowly move higher.

The USDA will release August’s Dairy Products Production report tomorrow at 2pm CST. We are expecting American cheese production to come in at 114.2 mil lbs. a 0.4% increase YoY but down 0.4% vs. July. Other Cheese production is estimated at 600.5 a 3% vs. LY but down 2.9% vs. LM. Total cheese production is estimated to be up 1.9% vs. LY and down 1.9% vs. last month. If we see an increase YoY but a decrease vs July, recent weakness could be more of a consumption hiccup rather than an oversupply.

CWT accepted 1.6 million pounds of cheese into export assistance for delivery through the end of the year; bringing the annual total to 39.749 mil lbs.

We look for Class III, Cheese and Dry Whey to steady. 



Class IV, NFDM & Butter

The bubbling up of the spot NFDM price over the past month has been capped around $0.95/lb., and has backed off some. Yesterday, spot settled up 0.25 cent to $0.93/lb. on 1 trade and 1 unfilled bid and offer. We expect additional strength in NFDM. The international markets have cooled off as of late as well, which may point to a mixed GDT auction today. Milk production in the EU and NZ continue to trend lower however. In the US, NFDM is also decreasing. This is likely a supportive feature for NFDM and going forward we expect NFDM move higher.

Spot butter edged closer to its 5 year average of price of $1.85/lb. yesterday settling 0.75 cents lower to $1.89/lb. There seemed to be an uptick in sales about 4-6 weeks ago when prices first began to show signs of weakness. End-users used this initial move lower in pricing to lock in additional loads for the anticipated fall rally. All of this is to say that buyers were more aggressive in getting coverage a month ago – pulling forward holiday purchases – and now the butter bid has thinned out in the face of still massive inventories. This may be why the U.S. butter market continues to trade its own set of circumstances while largely ignoring the sharp rally in European butter prices over the past several months. 

We are projecting Aug NFDM production to be 114.2 mil lbs. down -7.8 vs LY and -25.3% vs LY. August butter production is estimated at 136.8 mil lbs. up 6.8% vs. LY and down -4.8% vs July. 

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


Corn and beans were able to extending their rally from Friday. Funds were thought of to be buyers of both; 15,000 contracts in corn and 8,000 contracts in beans. Brazilian exports for corn and beans in Sept were down vs. last year, possibly hinting at a loss in market share due to competitive pricing domestically. That may have supported the market yesterday, but without fresh news harvest pressures will be a headwind today.

Harvest continues to plug along this week. The USDA projects that 24% of the crop has been picked, the same amount this time last year, but behind the 5 year average of 27.0%. Soybean came in at 26% harvested, down from 36% last year and 27% the 5 year average. As harvest moves north we should see a slowdown. Persistent rains last week and forecasts for this week may cause delays for farmers trying to get into the fields. Corn crop conditions declined again this week, dropping this year’s crop to the 5th best since 1989. This year’s soybean crop improved week over week and now sits at the 3rd best since 1989.


We look for Corn and Wheat to open 1-2 lower, Soybeans 4-6 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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