General Market News
· Judge Approves $50M Settlement to Northeast Dairy Farmers http://goo.gl/HEdEVZ
· Yili’s Oceania Dairy narrows full-year loss http://goo.gl/cK25NK
· Foremost producer to make Thailand Asean export hub http://goo.gl/xCTxv8
· Crude Oil tops $51 as U.S. inventory falls, China demand looks promising
· Thailand’s CP Foods aims to supply fast-food chains in India http://goo.gl/qIimT8
· Opinion: Why this era of globalization is coming to an end http://goo.gl/iJ0CrC
There is still time to register for our 13th Annual Dairy Outlook Conference in Chicago on June 16th.
Please see the agenda at the following link. http://goo.gl/M8iDnO
Class III, Cheese & Whey
What goes up must come down or so the saying goes. One thing is for sure and that is volatility is back in play for Class III and cheese futures. The four day stretch of short covering that jacked futures more than a dollar higher in some cases got a bit frothy and with a whiff of spot weakness in the air, quickly brought sellers back in force. Yesterday’s selloff really opens the door to more questions than answers as far as where to next, but our opinion things still feel a bit heavy here. Bull markets are not usually born out of short covering rallies. The fact that spot couldn’t muster more strength upon the opening of the spot call suggests that spot prices are too high. Could we see a pullback to $1.40 on spot? It seems like a plausible scenario given that was an area which saw support and was the lower edge of the $1.40-$1.50 range we were stuck in for most of this year.
Given the intense pressure and failure to take out the April highs, there’s the potential for a test of initial technical support levels to the downside at the 50-day moving average (red line on the chart below). A breach of that level would open the door to March lows and inevitably levels seen in mid-May. Ultimately there is quite a bit of technical support below, so we’ll have to watch closely to see if that holds or if the tides of these dairy markets are indeed changing.
One thing of note on this rally was the amount of producer selling that took place, which suggests that there had been a fair amount of complacency and a lot of unhedged milk out there. If additional price downdrafts materialize there may be less producer selling, which may take some weight off of the futures market at some point. But for today, we look for a higher open followed by additional selling.
July-December Class III – Daily Chart
We look for Class III, Cheese and Dry Whey to open higher.
Class IV, NFDM & Butter
Weakness spilled over in to the Class IV side of things as well and while no Class IV contracts traded, both components traded in the red. Butter futures trimmed back from July-October on solid volume as another steady spot call left the price static at $2.14. The market is well supported north of the $2.00 mark as hedgers have been very proactive in securing flat prices. Back to back record pricing years tends to put a lot of fear into the equation and that has been the driving force here for months now. Fundamentally speaking, prices should probably be a bit lower from current levels as there’s adequate inventory in storage. That said and with any market where fear is the main driver, price action doesn’t always jibe with fundamentals.
NFDM futures also saw a trimming of the forward curve as futures through December were pressured lower. With spot having difficulty gaining traction north of the $0.80 level, futures look a bit rich here and remain vulnerable to additional downdrafts if more pressure is exerted on cash.
We look for Butter and NFDM to open lower.
Grain markets continued to advance on the heels of strength in the soybean market which has seen a bit of a correction in the old/new crop spread over the past few days, but nonetheless remains firmly entrenched in a bullish camp. Fact is, 50 cents or more could be taken out of the market and it would still be on bullish footing as little to no chart damage would be incurred. Spillover support has boosted both corn and wheat as a result, with fund managers continuing to add to bullish positions across the grain and larger commodity space. Immediate weather issues on a dry forecast for the next few days is underpinning the market but the larger story is based on the idea that La Nina has the potential to scorch the 2016 growing campaign. At current, both crops are in good shape but expect pullbacks to be bought until more is known about the long term forecast. Traders will be squaring positions ahead of this Friday morning’s USDA supply and demand report, which is scheduled for release at 11:00, CST (estimates below).
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