General Market News
· Dow jumps 269 points, reclaims a portion of 2-day Brexit-induced rout http://goo.gl/Agsdma
· British pound could hit history-making dollar parity by end of 2016 http://goo.gl/iDpMkM
· EU to open review of Bayer, Monsanto Merger
· VW to pay car owners up to $33,000 each over the emissions fiasco
· Small Wisconsin dairy hopes to milk new trend: a1-free http://goo.gl/2YX0VA
Class III, Cheese & Whey
Yesterday’s action started off as a snoozer but quickly morphed into strong, bullish action after technical levels of support were again tested, subsequently held and after spot was bid higher, it was back up the roller coaster we went. Question number one is where’s this market headed? Question number two is—what’s been the driving force behind the overall move? There’s been a lot of debate on this one ranging from short covering, to higher grain markets, to adverse weather forecast, and if those don’t work then China must be buying dairy more aggressively. Maybe there’s a bit of truth in there but we’d really have to chalk it up to choppiness as the market continues to consolidate as well as dairy markets taking a cue from recent action over on the grain side of things based on adverse weather forecasts.
With recent calls for the much feared dome of heat to set up over the Midwest later in July and into August and a lack of precipitation to go with it and viola—it’s a weather market. Other than that, we really can’t to any material change in the fundamentals as milk production continues chug along in key cheese producing regions and cheese stocks continue to build. Granted there’s been some heat out in California, but futures markets tend to get out ahead of the actual event, which is where “buy the rumor—sell the fact” was born. This holds true here as the trade is building in weather premium ahead of any heat and can continue to build that premium in so long as there’s no significant modification to the forecast.
One thing is for certain and that is the trade has been willing to step in at technical areas of support on numerous occasions and yesterday was no exception with the 10 day moving average (gold line) once again acting as a springboard. Another bullish feature on the chart below is the crossing of the blue and black lines, representing the 20 and 200 day moving averages. The combination of those two aspects in conjunction with the present weather fears and you get what we saw yesterday—a sharply higher futures board. That said, we’d be remiss not to point out that there’s been consistent divergence on this move with the RSI (Relative Strength Index) as it has moved lower when futures have pushed higher. That usually signals that futures price strength is running out of steam and rallies are on borrowed time.
August Class III~Daily
We look for Class III, Cheese and Dry Whey to open higher.
Class IV, NFDM & Butter
Class IV received mixed signals yesterday as its components diverged on butter weakness and NFDM strength. At this juncture, we’ve seen a healthy pullback in the forward curve for butter as the spot price has eroded back to $2.30 where, if no support materializes, it could be a quick drop towards $2.20. Bearing in mind the record pricing of recent years and we’d expect a certain amount of buy side interest to show up on subsequent weakness. There’s some level of support near 2.30 for the July-December timeframe with additional areas of interest down near 2.20 and rightly so, as this has been an area where hedging activity was brisk. Ice cream makers are pulling hard on cream, but so far it looks as though futures prices got out ahead of strong demand earlier this month.
NFDM futures remain resilient in the upper areas of the well-established trading range as the spot price oscillates around the $0.90 mark. A push towards $1.00 seems a bit of a stretch here from a spot perspective, but the futures could run a bit as they continue to trend to the upside and build in premium. The Q4 strip sits north of the $1.00 mark and though at first glance that seems a bit high, but it’s really not from an historical perspective.
For the week ending June 24th, CWAP came in 1.7% higher, at $0.7821.
We look Butter, NFDM and Class IV to open higher.
Grain markets continue to be underpinned on weather concerns, particularly for the beans as recent forecasts have called for a hot/dry dome to materialize in late July-August timeframe, which could potentially fry the bean crop. That has boosted futures about 50 cents over the past few sessions and while corn hasn’t shown the same enthusiasm, it has held that market from a test of the lows. Traders are also squaring positions ahead of the June 30th USDA grain stocks/acreage report, which has historically been a market mover. With the balance sheet for beans a bit on the tight side to begin with, any weather issue or disruption in the global export arena will directly reflect on our balance sheet, which will likely limit downside for the time being. Below is the latest forecast models which point to some heat potentially moving in on the Dakota’s as well as the western sections of Nebraska. Granted, these forecasts change on the hour and therefore volatility should be expected moving forward as the trade adjusts.
We look for Corn to open 1-3 lower, Soybeans to open 5-8 cents lower with Wheat to open mixed.
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