Morning Dairy Comments, 12/29/2016

Thursday, December 29, 2016

General Market News

· Singapore defaults seen as bellwether for 2017 Asia distress

· U.S. trade gap rises to 5.5% in November

· Jobless Claims tumble 10,000 to 265,000

· Putin Says Syria Cease-Fire Agreement Reached

· U.S. Dairy Exports Quadruple in Value Over 10 Years


Class III & Cheese

Class III and cheese futures behaved resiliently yesterday trading higher into the close after a mixed trade for spot and on an otherwise quiet news day. Granted, spot was rather active and there is apparent demand for cheese around current levels. No doubt we have fresh cheese available to meet that demand for now, but the trade seemed to find inspiration from the cheese buy side yesterday. 7 loads of block cheese and 10 loads of barrel cheese traded in a mixed fashion, but the buy side appetite on what would normally be a slow holiday week is the focus.  Firming dry whey prices likely had a hand in continued class III support.

With only two days left on the 2016 calendar, we could make a case for slower trading volumes and less volatility going into the long holiday weekend (markets are closed Monday). But that wouldn’t give credit to the strong close for both class III and cheese yesterday; many nearby contracts finished on or near their highs of the day. Typically, that is a good sign of strength in the short-term. Some year end fireworks could be in the cards. For a year like 2016, should we really expect anything different? 

On the international front, Argentina’s exports for November were released yesterday. On a milk equivalent basis their exports fell 13.2% from last year.  Argentina is a small exporter, so the drop we’re seeing isn’t huge in tonnage terms, but it still has an impact on the edges. There may be several reasons for the drop-off in exports, but most signs point towards weather. Flooding knocked down production 10-20% during the middle part of the year and that has now fed through to exports.


We look for Class III and Cheese to open higher.



Class IV, NFDM & Butter

Butter markets plummeted yesterday trading as much as -4.975 cents lower in February. With volume was moderate (149 contracts) and open interest mixed, the move really only scratches the surface of a possible downward correction. Since mid-October, the February butter contract gained 45 cents without much of a slowdown. We look for a more meaningful downside price correction as we enter the first few days/weeks of 2017. Ultimately cream remains firm and we think that will keep any correction still north of the $2.00 level.

NFDM traded mixed on lighter volume during yesterday’s session. Spot NFDM remains well supported at the $1.00 level and although this is a market that could slunk its way through the next couple of days on lighter volume and mixed trading, we anticipate continued strength to both spot and futures leading off 2017.

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


Overnight grain trade was firm but volumes were vastly lower than the previous overnight. From a technical standpoint, the markets are looking for a reason to jump. But supply fundamentals continue to act like a wet blanket on any rallies. Perhaps that will change as we enter 2017 and funds reposition their books and analyst chatter about how well the South American harvest goes. Also, we’ll have US planting/weather concerns that ought to underpin markets more notably at some point in the future. But for the balance of 2016, the grain markets look more mixed. The US dollar is down some this morning and that is leading to an opening call of modestly higher for corn and soybeans.



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