Morning Dairy Comments, 11/07/2016

Monday, November 7, 2016

General Market News

· FBI clears Clinton – again

· 5.0 earthquake rattles Oklahoma oil-storage hub

· Dairy exporter Fonterra aims to climb the value chain

· Yili ups the ante in milk war with Mengniu

· Janet Reno, first female U.S. attorney general, dies at 78



Class III, Cheese & Whey

Class III and cheese advanced again Friday on the heels of a new 2016 record price for block cheese, which settled 3.75 cents higher to $1.90. Nearby November and December futures posted their 9th consecutive day of higher closing prices on moderate volume. Amid all those higher closes, futures remain well discounted to the current spot equivalent. Logically, market participants are of the mind that futures will continue to claw higher so long as spot continues on its skyward path. But be careful – there is an imminent risk of downdrafts to nearby futures prices.
We’ve written a number of times that the trend is now up – and we’re not changing our stance on that direction for the medium and longer-term. But both class III and cheese futures have gone parabolic recently and that leaves the futures market vulnerable to washout corrections to the downside.
Spot cheese is up on a few factors that have tightened up the fresh cheese market – particularly for blocks - over the past few weeks or so. We expect that situation to correct itself, however, and expect that more cheese will free up for sale at the exchange in the near-term. Time will tell, but the key feature this week may very well be the convergence of spot and nearby futures prices – led by spot correcting lower.

Friday’s export numbers showed cheese exports were just over 22,000mt in the month of September which was down 1% from last yr. Sales to Japan continue to be sluggish vs last yr and sales to the Middles East and North African countries are not inspiring either. Although cheese exports to South Korea were up 19% from last year. YTD cheese exports are down 15% at 209,000mt or roughly 461 mil pounds which reflects 5.1% of total US cheese production.

Dry whey exports were impressive up 36% from last September at 15,217mt with YTD export volumes down 5% from 2015’s pace. WPC’s were up 15% in Sep at 24,318mt and most of that can be attributed to Chinese as their volumes are up about 13% YTD vs 2015’s pace at 93,109mt. WPI exports were up 21% from last Sep but YTD volumes are down about 15% from 2015.

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


Class IV, NFDM & Butter

The spot NFDM market fell 2.25 cents lower to 84.75 on Friday as the domestic market continues to fade last weeks’ strong GDT results. The sentiment is mixed as end users domestically have been buying hand to mouth expecting the spot market prices to stay weak. Last week Germany’s SMP quotes were €25/mt lower to €2,090/mt, France flat at €2,130, and the Netherland’s flat at €2,000. The Dutch price is equivalent to about USD $1/ pound. The Euro/USD strengthened from $1.09 to about $1.11 over the past two weeks. The run up on the GDT is mostly attributed to Chinese buying and milk tightness on NZ’s North Island in the Waikato region. In the short term for Nov and Dec NZX WMP futures are $1,000/mt (roughly 45 cents/lb) premium to SMP. Some end users that can’t source WMP from other regions are forced to pay the inflated prices from Oceania. Looking at the 1st chart below the red bars (US-NZ SMP forward curve spread) shows NZX SMP futures are between $100-$200 premium to the CME’s NFDM futures.

On Friday the US export numbers were released showing roughly 52,000mt of NFDM/SMP exported (see chart below). These sales reflect about 70% of September’s total NFDM/SMP production. With another strong month of SMP production in September up 43.3% from last year we expect strong export number for the next few months to spill over.

The spot butter market was up 3.25 cents on Friday on 7 trades closing at $1.8925. The market continues to show good seasonal support as buyers continue to find good value at these levels especially as it’s under most budget targets. Last week’s USDA Dairy Products report showed nationwide production flat at -0.4% from last September. Although it was interesting to see California was up 3.8%, while more cream was flowing with 7.3% more mozzarella produced in the state. Outside of California, the rest of the West was down 5.4% on  butter production. CA is roughly 60% of the western butter production (40mil lbs. out of 65 mil pounds) which indicates other states production cut back significantly in September.



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


It was quiet end to the week in the grains world as the market attempted to recover from an overall commodities beating excluding dairy. Crude oil took a few haymakers as the Dec Crude futures fell $4/barrel on the week to $44 on overall skepticism on OPEC’s ambitions. Overall, the speculative community has been “risk off” with the looming election. Although this AM the S&P 500 gapped higher by $30 so far, the USD up almost 600, and gold down $18/ounce. Friday showed decent jobs data pointing towards optimism the fed to raise rates after the election.

The trade will be looking out for the USDA’s report on Wednesday and the mantra “big crops get bigger” will be the main theme. Our peers at informa adjusted their estimates higher on Thursday:  Corn yield 174 vs 173.4 in October and Soybean yield 52.4 vs 51.4 in October. FCStone’s crop survey released last Monday produced a 175.3bu corn yield and 52.8bu bean yield both slightly higher than our previous estimates.
A major fertilizer company estimated next year’s soybean acres to come in at 85 mil acres, and corn acres to come down significantly to 88 mil acres down a whopping 6.5 mil acres from this year. Otherwise Chinese buying has been impressive lately and their crush margins have been supportive lately to our bean prices. See the chart below that compares Chinese crush margins vs the CBOT board price.  (Chart next page)

We look for Corn to open modestly lower, Soybeans 8-10 higher, and Wheat steady.



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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