Morning Dairy Comments, 10/06/2016

Thursday, October 6, 2016

Having issues with sending images this morning, please see attachments.

General Market News                

*      Authorities urged more than 2 million people to leave their homes in coastal Florida, Georgia and South Carolina as the storm neared -- the largest mandatory evacuations in the United States since Hurricane Sandy hit the East Coast in 2012.

*      Biggest dairy surge in 7 years extends global food-price rally

*      Jobless claims drop 5,00 to 249,00

*      Wal-Mart offers lackluster outlook for 2017

*      Shares of Twitter are plummeting down 15% to $21.14 after reports suggest Google will not prepare a formal bid for the company

Class III, Cheese & Whey

The class III market certainly wants to bounce from the recent pullback as it tried to climb off its lows but couldn’t avoid the pressure from the spot barrels pulling back. Oct through Feb contracts were steady to 9 lower on the day while 2017 contracts were steady to 3 higher from there forward.  Look for more of the same today as the futures look for any sign of life from the spot market as a reason to try to bounce and futures are 2 to 6 higher already this morning. Weekly NDPSR prices were $1.6732, -5.07 cents, for the block and $1.5950, -4.63 cents for the barrel.

The dairy products report was a mixed bag yesterday as we saw a sizeable drop in whey stocks but maintained firm stock levels for WPC. Whey futures have fallen a bit quiet of late but export data continues to show very strong volumes with a 46% increase year over year for August. Upside certainly still seems to be there for this market but if China slows down their recent buying we’re likely to head back nearer the 30 cent mark. For now, the market feels comfortable with a low to mid 30’s valuation. Weekly NDPSR pricing for whey was 31.35 cents, +1.27 cents from the prior week.

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

Dairy Products Report

The Dairy Products report released today contains estimates of August 2016 dairy product production, as well as manufacturer’s end-of-month stocks for dry proteins and lactose.

Our interpretation of this report is as follows:

*             Butter—bearish. Butter production in August was 129.04 million pounds. Below our expectation for 136.75 million. When taking into consideration that stocks didn’t decline as much as is typically seen from July into August this doesn’t look great for butter demand.  

*             Cheese—bullish. Total cheese production was slightly below our expectations but the reason for our bullish call here is that production shifted out of American type cheese. American cheese production was 389.4 million pounds below our expectation for 396.5 million. A decline of 1.4% year over year and down 2.4% month over month. This was a particular surprise as production of hard cheeses dropped rather significantly this month. The state by state breakdown was also very interesting for cheddar cheese. It showed a decrease of 7.7% month over month for Wisconsin while California production was up 11.1% vs. July.

*             Nonfat dry milk— neutral.  NFDM production slipped this month as SMP production increased. NFDM production was down 5.8% year over year while SMP was up 17.25%. Inventories of NFDM slipped as a result but not so significantly that we would term this a supportive report as stocks still sit in line with the elevated levels of the past two years.

*             Dry whey—bullish. Dry whey production dipped this month in line with the normal seasonal pattern, though well below a year ago, -8.4%. The reduced production meant that stocks were also declining and are now mostly in line with the 5-year average. This is down a massive 14.5% year over year and a clear trend is occurring with usage outpacing supply the past four months.

*             WPC—bearish.  WPC production this month was down 13.7% year over year but while production is slipping the stocks of WPC are actually increasing slightly, +3.7%, right in line with the 5-year average.

*             Lactose—bearish. Lactose inventories were up moderately this month by 1.4% from July despite the fact that production slipped by 5.7% month over month. With inventories holding above the 5 year average we’ll term this a bearish report.

Dairy Production Highlights, August 2016 (%Change Year Over Year):

American cheese production,  389,368 thousand pounds, down -1.41%

Mozzarella cheese production,  329,058 thousand pounds, up 4.41%

Butter production,  129,035 thousand pounds, up 0.74%

Nonfat dry milk production,  116,704 thousand pounds, down -5.80%

Skim milk powders production,  46,064 thousand pounds, up 17.25%

Milk protein concentrate production,  9,835 thousand pounds, down -1.33%

Dry whey total production,  75,799 thousand pounds, down -8.39%

WPC total production,  34,160 thousand pounds, down -13.66%

Lactose production,  92,141 thousand pounds, up 6.45%

Inventory Highlights, August 2016 (%Change Month Over Month):

Nonfat dry milk inventory,  234,695  thousand pounds, down -8.60%

Dry buttermilk inventory,  16,167 thousand pounds, down -13.20%

Dry whole milk inventory,  13,707 thousand pounds, down -2.20%

Dry whey inventory,  60,649 thousand pounds, down -14.50%

Lactose inventory,  119,011 thousand pounds, up 1.70%

WPC total inventory,  58,141 thousand pounds, up 3.70%

Class IV, NFDM & Butter

On the heels of GDT NZX prices continue to be mostly lower and that pushed NFDM to a mostly lower settlement as we are now quickly seeing the carry come out of the forward curve. We finished the day +0.350 to -2.425 with very heavy volume of 414 trades as the first half of 2017 was very active yesterday. Weekly NDPSR pricing was 90.76 cents up 0.56 cents from the prior week but a bullish sign as volume was up nicely to over 18 million pounds. Dairy products seems unlikely to have much of an impact today.

Butter continues to be under pressure on the spot market, falling another 1.25 cents yesterday to its lowest price since July 2015. As with NFDM good volume was traded yesterday with over 260 contracts and prices were mixed but mostly lower here as well. Settlements ranged from +0.650 to -0.975. Perhaps last night’s NDPSR can provide a little bounce as it was surprisingly higher week over week at $2.0490, +1.48 cents, but we have our doubts with spot still trading some 5 to 6 cents below futures.

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


The wheat market continues to find some support and is doing its best to hold the balance of the complex up however reports of big soybean yields & harvest pressure kept corn, -0.50, and soybeans, -6.75 cents lower on the day. Wheat meanwhile closed up 9.50 cents. Protein premiums and low acres are supporting wheat but if it runs too far it will face the risk of pricing itself out of both exports and feed demand. Below we include recent yield estimates for both corn and soybeans. The bean chart is quite amazing to look at. Rains continue to be a problem as I got the following picture from southern Minnesota last night but as I told this farmer, guess there’s a price to pay when you’re harvesting 75 bpa soybeans.

We look for Corn to open 1-2 lower, Wheat 2-3 lower and Soybeans 1-2 higher.

EU cow slaughters

Data released by the Eurostat this week reporting German and Spanish cow slaughters showed the pace of slaughters eased somewhat in July. German slaughters totalled 94,000 head, down 6.9% on last year which is a big reduction in percentage terms on the 9.8% increase observed in June. July represented just the second time this year that German monthly slaughters fell behind last year. Cumulative German slaughters for the year to the end of July total 729,000 head, up 6.7% on last year.

Spanish slaughters also eased back behind last year in July, totalling 35,080 head, down 6.1% on last year, but 8.9% ahead of the three year average for July. This was the first time in 2016 that monthly Spanish slaughters dropped behind their corresponding month last year. Cumulative Spanish slaughters for January to July now total 231,770 head, up 9.1% on last year.

EU cow slaughters for July totalled 595,360 head, which represented a 2.6% reduction on the same point last year as all of the nine leading milk producing saw slaughter numbers ease back, and many falling behind July 2015 slaughter numbers. January to July slaughters remain well ahead of the same period last year, totalling 4,301,440 head, 6.4% ahead of the same point last year.

Further data released this week showed French slaughters, which eased back behind last year in July (-5.3%) exceeded last year in August, totalling 156,630 head, up 14.3% on August 2015 and 19.2% ahead of the three year average for August. Cumulative French slaughters for January to August now total 1,172,080 head, up 4.9% on the same period last year.

It was a similar story for Dutch cow slaughters in August which also increased on last year to 35,010 head, up 9.0% on August 2015 and 10.7% ahead of the Dutch three year average for August. Cumulative slaughters for the year to August now stand at 263,370 head, up 13.5% on the same point last year.

EEX Futures

Just 13 lots traded on EEX yesterday with all lots trading over SMP’s Oct17 contract. All 13 lots traded at €2,250, down €25 from its last traded price of €2,275 from September 28th.

NZX Futures

It was another reasonably quiet session on NZX again overnight with 149 lots/tonnes trading over WMP, SMP, AMF and butter. 40 lots of WMP traded over the Jan17 contract at $2,750. down $90 from its last traded price from Tuesday. SMP traded the next 20 lots over the Jun17 contract at $2,520, up $20 from its last trade price from the previous session. AMF traded the next 22 lots, with 20 lots trading over the Oct16 contract and two lots trading over Nov16. Oct16 traded its 20 lots at $4,950, unchanged on its last traded price from Wednesday while Nov16 traded its two lots at $4,925, down $85 from its last traded price also from Wednesday. Butter traded the remaining 67 lots on NZX overnight with all lots trading over Q4 2016. Oct16 traded the first 27 lots at $3,950, unchanged on its last traded price from the previous session. Nov16 and Dec16 traded 20 lots per month each, both at $3,930, with Nov16 up $5 from its last traded price from Monday and Dec16 unchanged from its last traded price from Friday.

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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