General Market News
· Crude Oil headed to largest quarterly price gain since 2009 http://goo.gl/by9UsC
· US dairy groups hope for action on Canada trade at summit http://goo.gl/0L1nTX
· EU farming chief plans new dairy aid http://goo.gl/3TqHj3
· Fonterra price cut another blow to Australian dairy farmers http://goo.gl/1b2op0
Class III, Cheese & Whey
The past few weeks of trading have giving new meaning to “June Dairy Month” with a spectacular display of price strength for class III and cheese futures. Yesterday was no exception. What a day it was for spot cheese as barrels took the headlines with a 10 cent move higher settling at $1.66/lb. while blocks moved 5 cents higher to $1.58/lb. The move higher on spot validated the rally in both Class III and Cheese futures Tuesday, leaving room for additional gains. The September Class III contract printed $17.12 – eclipsing the prior high this month of $17.03. At first blush $17.12 seems like a rather innocuous number resulting from the fog of a sporadic and volatile trading session. But $17.12 is also 2 cents higher the all-time contract high for the September 2016 contract, established nearly 13 months ago. To put this in perspective, the September class III contract has gone from new contract lows to new contract highs (a $2.90 move) in just six weeks’ time.
Interestingly, the markets backed away from high price points established shortly after the spot session by the 1:10 pit close. Yesterday afternoon brought a flurry of selling that dropped both class III and cheese back to only a few pennies higher on the day and that selling continued overnight.
The market has done an excellent job of running ahead of the recent spot strength, but that story looks to be changing and we expect the trade de jour to be one of convergence between spot and futures. Spot did the heavy lifting yesterday. Will that continue today? It could as it seems spot sellers are few and far between. But fundamentally we’d expect that $1.60ish cheese ought to bring some available fresh loads to market making the recent futures rally highly vulnerable to set-backs as we wrap up one doozy of a dairy month.
The NDPSR numbers may have been part of the reason for yesterday afternoon’s sell off. Last week fresh barrel cheese sales were reported at 10.3 mil lbs. 200,000, lbs. above this year’s average, and far from this year’s high of 11.3 mil lbs. made the week of Jan 16th. Blocks on the other hand came in 2 mil lbs. above this year’s average weekly volume. In fact block volume has been above average since the middle of May, yet continue to lag in price to barrels. Even with large inventories a shortage in fresh cheese can ignite a rally in class III and cheese futures. However, without any fresh news of production woes, or outliers in NDPSR volume it is hard to validate a continued futures climb from current levels.
We look for Class III and Cheese to open lower, Dry Whey steady.
Class IV, NFDM & Butter
Butter futures closed 2 to 5 cents higher though Feb 2017 today, with the nearby contracts finishing highest. This was mostly in part of a spot session that saw no trades but closed 3 cents higher to $2.33/lb. on 1 bid. Continued concern of hot weather out west will more than likely keep supporting the market, as well as ice cream season being in full swing. However, the most recently weather shows average temps for the next two weeks out west, which should give a temporary break to cows in that region.
The USDA reported Butter production in the East has fallen as additional cream is making its way to Class II plants. NDPSR volume for butter last week was about 1 mil lbs. lower than this year’s average, as inventories continue to build. This recent run up in price has buyers locking in product for the remainder of 2016 and into 2017. So this last week’s volume is not necessarily a good indicator of demand, due to most of production being already committed.
Spot NFDM was down 2 cents yesterday settling at $0.88/lb. Futures however finished mix with July and Aug down around ½ cent while the rest of the contracts traded higher to unchanged. It was a light volume day for NFDM futures, looks for fresh news for price direction. With the news of Brexit and the strength it is has caused in the USD should keep a temporary lid on NFDM futures; especially if crude is not able to sustain prices +$50.
We look for Butter, NFDM and Class IV to open mixed.
Corn and beans both finished lower yesterday as traders position themselves for today’s report. The weakness is corn has now retraced to levels not seen since April of this year. Weather markets come and weather markets go. Soil moisture in the major grain growing regions remains adequate, although unseasonably warm weather is being forecasted for that same region. The most recent forecast calls for an increase of precipitation in parts of IL, MI, IN, MN, and WI. Continued favorable weather should be bearish on grains, but will take a back seat ahead of today’s report. Below you can see our estimates for this morning’s report (released at 11am Central).
We look for the grain complex to open modestly higher ahead of today’s report.
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