Morning Dairy Comments, 10/26/2016

Wednesday, October 26, 2016

General Market News

· Tourism surpasses dairy as New Zealand’s largest export

· Russian dairy herd hits all time low at 7.32 mln head

· A flurry of earnings reports continues to be released, Apple’s forecast disappointed but sales remain strong, Boeing showed stronger than expected profits, Coke also exceeded expectations while Southwest saw revenues disappoint

· Add it all up and equities are slightly lower this morning

· Dairy farmers warn Australia may have to import dairy:

· Tasmania gets first direct flight to China, for milk:



Class III & Cheese

Class III values moved slightly higher yesterday, with futures settling anywhere from -4 to +11 through 2017.   While futures were up slightly, volume across the board was concentrated in the nearby contracts, with 2017 trading higher, on relatively light volume. The Q1 pack is trading at $15.57, near the midpoint of its trading range for the month of October. As we move farther into “holiday buying” season, it looks like we may not see the bounce that we are accustomed to seeing for a variety of reasons. Elevated stock levels and reports of forward buying ahead of typical holiday demand seem to be the most discussed reasons for the lack of any seasonal bounce. Regardless, while we expect the market to be supported we know that cheese production seems to be keeping pace with demand and heavy stocks seem to be weighing on the market.

In the short term, we expect this tug-o-war to continue with any sharp move higher likely short lived as we move through the end of the year. The longer-term outlook is less certain should weather problems in New Zealand persist. Though the numbers didn’t show up in the data for September milk production it seems likely that a more sizeable decline in milk production is on tap for the month of October.

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



Class IV, NFDM & Butter

Butter markets skyrocketed yesterday as spot moved 5 cents higher. This move higher occurred on 20 trades with two bids left on the board.  While we are hearing that production is fairly active, the recent price break may have been enough to attract some buying interest. That said, this recent spike higher could also have been a case of someone getting “caught out of sorts” and needing to fill an upcoming holiday order.  Regardless, this move higher looks to be the steepest increase seen over the last 3 months, specifically in the January contract. With $2 plus butter with us for most of the year, it comes as no surprise that interest would be garnered below that level, however, stocks remain high. We may already be getting an answer to how quickly the import/export balance is flipping as well. We’ve already heard some reports of butter moving into the export markets with the price flip from the US premium to a global premium. 

NFDM settled anywhere from -.525 to UNCH.  Fundamentally, little has changed with NFDM trading in a tight range. While mixed yesterday, volume numbers managed to surpass those of butter with 177 occurring on the day. News seems to be nothing but bullish in regards to demand and milk production from an international standpoint yet we are struggling to have prices pick up for NFDM. While we do expect to see some strength in the lagging market there seems to be some significant lag for this market at the moment.

Weekly CWAP prices were down by 0.86 cents to 89.07 cents despite volume falling back to just under 5.5 million pounds.

We look for butter and NFDM to open higher. 


Both Corn and Beans settled slightly yesterday. Corn has been fairly range bound for the month of October trading within a 20 cents range, specifically in the March contract. With harvest ongoing, many are looking ahead to next year with the big question surrounding acreage of corn vs. beans. While that is the question being posed in the northern hemisphere, things are just getting started in the southern.  For now, one could expect some fairly quiet trade until we get a better picture of what that growing season will look like.

We look for corn and wheat to open lower, soybeans to trade higher.  



UK cow slaughters for September

UK cow slaughters remained strong in September, totalling 58,140 head, up from 50,460 in August as per the seasonal norm as farmers slaughter their older, less productive cows as we now head back towards the bottom of the milk production curve. More significantly, September’s slaughter numbers were up 22.9% on the 47,320 head slaughtered a year earlier, and 22.5% ahead of the three year average for the month. September’s numbers represented the second largest month of cow slaughters so far this year, but the biggest year on year increase of any month in 2016. Cumulative slaughters for the year to the end of September now total 466,230 head, an increase of 10.5% on the same period last year.

Irish weekly cow slaughters

Irish cow slaughters were also higher in week 42 of the year (W/E Oct 23rd) totalling 8,430, up 5.5% from 7,987 head from the previous week and 25.2% ahead of the same week last year. From the middle chart below, we can see the extent to which cow slaughters over the last number of weeks have exceeded their corresponding week last year as Irish cow slaughters typically creep higher at this time of year as farmers look to slaughter their older or less production cows in advance of the winter months as Irish milk production curve continues to drop towards its trough in December and January. Cumulative slaughters for the year to date now total 284,456 head, up 8.7% on the same point last year. Cumulative Irish slaughters for the year to date are now just 8,600 head behind the same point of 2014 which saw cow slaughters for the year finish about 43,300 ahead of 2015’s cumulative slaughters.

EEX Futures

A combined nine lots (45 tonnes) traded on EEX yesterday with six lots trading over butter and three lots trading over SMP. Butter traded its six lots over the Jan17 and Feb17 contracts with both contracts trading three lots per month at €4,185, both up €35. SMP traded its three lots over the Mar17 contract at €2,210, down €20 from its last traded price.

NZX Futures

A combined 490 lots/tonnes traded on NZX overnight, with 320 lots trading over WMP, 140 lots trading over SMP and 30 lots trading over butter. Nov16 traded the firsts 45 lots of WMP at $2,960, up $20 from its last traded price. Dec16 traded the next 85 lots at $3,000, up $40 from its las traded price. Jan17 and Feb17 traded 80 lots per month each, both at $3,040, with Jan17 up $50 and Feb17 up $30. Mar17 traded the remaining 30 lots at $3,050, up $70 from its last traded price. SMP traded its first five lots over the Dec16 contract at $2,340. Feb17 to Jul17 traded 20 lots per month with Feb trading at $2,380; Mar17 at 2,410; Apr17 at 2,430; May17 at $2,450; Jun17 at 2,530 and Jul17 at $2,540. Jun17 traded an addition 15 lots also at $2,530. Nov16 to Jan17 butter traded the remaining 30 lots on NZX, each trading 10 lots per month with Nov16 and Dec16 trading at 4,010 and Jan17 trading at 3,980.

The NZX milk futures Sept17 contract traded 56 lots (336,000 kgMS) overnight settling at NZ$5.50, up NZ$0.10 on its last settlement price.

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