Early Morning Update, 09/10/2015

Thursday, September 10, 2015

General Market News
  • New Zealand signals further easing after third rate cut to 2.75%
  • Russian military build-up in Syria 'unprecedented,' officials say
  • China bears "are worrying too much," premier Li Keqiang tells the World Economic Forum
  • China opens onshore currency market to foreign central banks http://goo.gl/ttZsF3
  • China to explore 'dark side' of the moon http://goo.gl/PwjYUa
  • Saving India's dairy farmers with thermal milk coolers http://goo.gl/mjyllw


Class III, Cheese, and Whey

It's like Class III and cheese futures are adrift at sea with only the tides dictating direction at the moment as a static spot market has provided little in the way of direction since the spread has contracted, with both blocks and barrels content in harbor at sub $1.70 levels. 

In light of all the macro bearishness from an international standpoint, conventional wisdom would suggest the path of least resistance would favor pressure on prices with a shot at the July lows possibly in the offing. That said, we continue to marvel at the resilience that our domestic prices have shown throughout 2015 which further calls into question whether we'll ever be forced to converge with the global market? Domestic demand remains firm and with "cheese season" fast approaching, there's the likelihood that a floor has been put under the market with buy side interest lurking at levels not too far from current levels. Strength from the butter side of the equation also has to be factored in which has lent additional support of late as prices push towards the $2.50 mark. So long as no melt down occurs on that front, the cheese market will likely continue to find additional support from this aspect.  

Taking a closer look at the Q4 chart below, the strip is oversold with the potential for a buy signal to emerge upon another session that tracks higher. Upside targets would initially be the 10 day moving average (yellow line) at $16.24, with additional areas of interest resting at the 20 and 50 day moving averages (blue and red lines, respectively), which have both converged at $16.30. 

Q4 Class III Daily Chart


Look for a mixed opening on Class III, Cheese and Dry Whey.

Spot Session Results

























UP ½







UP 2  




Class IV, Nonfat, Butter Futures

The Class IV market caught a bid courtesy of component strength as both butter and NFDM futures posted gains on the back of higher spot prices. Early indicators yesterday pointed to a pullback in the butter market, as initial weakness that saw the November contract trade limit down gave way to higher price action after a 2 cent gain in the spot price unleashed a fresh wave of buy side interest. By the closing bell, contracts through Q1 were squarely in the green with sporadic higher marks dotting the 2016 landscape.

At this juncture is a 2.50 butter price warranted? Quick answer...probably not.  Justification for the move would be more in line with the hangover effect that end users experienced from the 2014 run-up, which has proven to have had legs and is likely the reason for why the butter price has shot to over a full dollar premium to the international market without looking back. That said, the market feels like it's getting close to the tipping point with a test and possible trade at the $2.50 mark likely to be the tell as to whether this thing has a legitimate shot at pushing even higher or if a larger meltdown is in the cards.

The NFDM market found some traction yesterday as the spot price traded firm which prompted buy side interest to step in and defend support levels. The trade remains in recovery mode and with bottoming action and baseline support levels carved out, there remains the distinct possibility that more upside potential could be realized. It's also fair to assume a certain level of push back will materialize around the $1.00 level as this should be an area of psychological and technical resistance which, coupled with the fundamental aspect of still burdensome inventory levels in existence, is likely to be an area where topping could occur.       

We look for a steady/mixed trade to begin the day.


Soft tones resonated from Oceania as WMP futures pulled back into the red with decent volume traded. AMF futures also exuded weak tones while the SMP market remained quiet. The season is off to a good start over there from a production standpoint, and without any weather issues it's fair to expect moderate year-over-year growth which has the potential to further weigh on the market.


Grain markets put up mixed results yesterday with corn posting fractional gains while both wheat and beans slipped into the red as the trade preps for Friday's USDA number where there is the expectation that yields will be slashed (see estimates below). From a technical standpoint, corn is attempting to muscle through resistance levels which have been impenetrable since the August report with beans in much the same situation. Both remain under initial resistance points with neither corn nor beans able to close above their 10 day moving averages (yellow lines on the chart below). Both made a run at it yesterday, but inevitably fell short by the closing bell.

December Corn – Daily Chart


We look for a mixed opening (2 higher – 2 lower) for corn, soybeans and wheat this morning.

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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