General Market News
· Global stocks fall as Bank of Japan holds off on additional stimulus http://goo.gl/RlvqvC
· Crude oil hits 3 week low on weak U.S. stock draw, Brexit fear http://goo.gl/6yqNLj
· INTL FCStone’s Annual Dairy Outlook Conference underway today
Class III, Cheese & Whey
The volatility and heavy trading interest within the Class III and cheese continued yesterday as the majority of trading volumes remain focused within the nearby contracts. For us, the key feature yesterday was an air of reluctance to take the market higher after spot firming. It really wasn’t until butter tacked on 8.75 cents that nearby class III and cheese futures continued higher without looking back. Perhaps that feeling of reluctance to go higher suggests the trade is tired. Perhaps it suggests the futures are by and large “well priced” for now barring any continued spikes in the butter market. But that reluctance could also mean that futures are handily overbought at current levels and running out of steam. With dry whey (and nonfat) starting to show signs of weakness, class III and cheese futures feel like they’re really reaching here lately.
We are hearing more talk of milk production slipping lower out West but Midwest production continues to chug strongly along unabated. The recent spike higher in futures values has provided a great opportunity for those producers who had failed to establish hedge protection before the extended slide into contract lows allowing some producers the chance to bolster their balance sheets. At the same time this bullish drive in the dairy markets, for however long it may last, should shelve some producers’ decision to cull down their herd sizes as a measure to constrict expenses. Logically, this would promote better domestic milk production (barring any weather events) for the months to come.
The National Dairy Products Sales Report released yesterday afternoon for the week ending June 11th announced the Block price at $1.3738, up 3.88 cents week over week, with sales pegged at 14,666,657 pounds. The Barrel price was reported at $1.4552, up 3.85 cents week over week, while sales were reported at 10,204,458 pounds. The dry whey price declined by 0.97 cents to $0.2521 while sales were reported at 9,001,473 pounds.
We look for Class III and Cheese to open mixed, and Dry Whey to open lower.
Class IV, NFDM & Butter
The butter market started strong out of the gate with gains approaching five cents prior to the start of the spot session. Yet the 8.25 gain during spot led to the tempering of the rally as futures prices drifted from their intraday highs. Growing demand for butter and fat based dairy continues to increase this year, and the butter market should remain fundamentally supported into year’s end, but the price surge over the last week looks a bit exhausted. While futures prices may move higher yet again today buy side interests will weigh their need for coverage against the prospects of $2.40 plus hedge price. We would expect the butter market to see a correction in value in the near term as sellers capitalize on the roughly 20 cents gains of late as the market catches it breathe.
NFDM ended the day mostly lower as contracts settled near the middle of their respective intraday trading ranges during an active session that saw over 250 contracts change hands. The two cent decline posted during the spot session thwarted the recent bullishness of the market that had pushed contracts to their highest price points in months. Any additional extended strength in the NFDM could lead to a bout of short covering like that just experienced in the Class III and cheese markets, shaking market sentiment for its long-held bearish stance.
The NDPSR for the week ending June 11th announced the butter price at $2.0920, up 2.30 cents from the week prior, with sales reported at 3,855,859 pounds. The NFDM price gained 2.18 cents to $0.7892 with sales of 16,185,225 pounds.
We look for Butter to open firm and NFDM steady.
Grains markets tumbled lower yesterday as shifts in weather models, technical resistance and profit taking drove prices lower. Weather forecasts are now calling for additional rains over the next 5-10 days that could bolster crop yields in some of the driest regions of the Corn Belt. Corn futures settled between 7.00 and 7.50 cents lower as China sold another 3.12 MMT of corn during its latest reserve auction at a price 60 cents/bushel below the cost to import foreign grains. Another round of reserve sales is scheduled for next week as China still holds an estimated 220 MMT to market.
Soybean futures sold off on the weather news, falling between 10.75 to 13.50 cents, as the NOPA crush for May was reported higher than anticipated at 152.8 mln bushels versus 149.7. Argentina’s Rosario Grains Exchange increased its projection for the 2015/16 soybean crop from 55.0 MMT to 55.3 while the USDA is projecting a crop of 56.5 MMT. U.S. soybean values are still the most competitive offer for the spot months of all the major exporters which should continue to attract export interests.
Wheat futures weakened as reports of good yields with high test weights and better protein levels are coming out of the Southern Plains. Weather projections for the region are calling for dry conditions that will allow the harvest to continue unimpeded. Australia’s ABARE raised their wheat production estimate for their crop to 25.4 MMT from 25 MMT, USDA had estimated the crop at 25 MMT, on improved weather conditions while leaving open the possibility of further increases in the future with the onset of La Nina. Wheat futures closed the day down between 7.50 and 8.25 cents.
We look for Soybeans to lead the grain complex lower on the open.
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