General Market News
· The USD continued to move higher closing up over 200 points yesterday
· Crude oil finishes up over $1.00 yesterday amid talks of a potential OPEC production freeze
· Wal-Mart looks to increase e-commerce business with $3.3 billion acquisition of Jet.com
· UK’s largest bank says pound could sink to $1.10 by end of year
· Small-business sentiment rose 0.1% to 94.6 this month a reading that bested estimates
Class III, Cheese & Whey
Class III futures moved closer in line with the Class III spot equivalent price yesterday, settling off their highs, but still 1 to 11 cents higher. The Spot equivalent now stands at approximately $17.55/cwt. over a 30-cent premium to September futures. The Class III futures curve is significantly inverted because of the inflated spot cheese price; signaling market participants to bring their excess loads to the spot call. Also, we have seen the NDPSR/CME spread narrow as of late, which suggests more loads may find their way to the CME.
Volume in Class III and Cheese futures was modest, but still below the 90 day average daily volume. The current rally has been looking like it has been running out of steam for quite some time now, but continues to slowly move higher. To put it in perspective, The October Class III contract has rallied 41 cents in the last 9 trading days. Only 2 of those days has it closed lower. That’s an average of 4 1/2 cents gain per day. During that same time daily volume has eclipsed 1,000 contracts twice, once being on the biggest down day of the rally. This market is poised for a break out, technical signals would say that’s to the upside, fundamentals seem to point to a downside breakout…only time will tell.
We look for Class III and Cheese to open higher, Dry Whey steady.
Class IV, NFDM & Butter
Our collogues across the pond are seeing a SMP market that is starting to pick up some steam. Last week saw a firmer GDT auction; making it the 4th out of the last 5 auctions that has seen an increase in SMP pricing. SMP production has also been entering intervention at a slower rate as the cash market is starting to firm. Manufactures domestically are taking note and shifting away from NFDM. It is still to soon to call for $1.10 NFDM futures, but not so long ago we saw active buying in the high 0.80s.
There have been several articles as of late about the relationship between dairy and crude oil. We have talked about it in the past, and would note that crude has been on a weeklong rally. Now, the relationship between NFDM and Crude is better looked at from a long-term perspective. With that in mind, if oil has found a bottom and put on another rally like from April to June, it might bring NFDM with it.
Spot butter was the only session that saw some price movement, settling ½ cent lower to $2.2675/lb. Futures had a hard time finding directions from a unconvincing spot session and settled mixed. We were expecting futures to consolidate some, after a period of high volatility. We expect that to continue until the market finds out just how much end users have put away for holiday season.
We expect NFDM, Butter and Class IV to open steady to higher.
The US has had great crops the past 2 years and looks to be in store for a 3rd one in just as many years. This thought was once again confirmed by another crop progress report, which but the national corn crop rating at 74% good/excellent, down slightly from last week at 76%, but above last years and the 5 year average of 70% and 58% respectively. This was slightly below trade estimates, which could have contributed to the ¼-1 cent gain yesterday in futures. Soybean conditions came in at similar levels, UNCH from last week at 72%; above last year at 63% and the 5-year average of 58%. Beans did close around 10 cents higher. Funds were thought of to be buyers 4,000 contracts, estimating their total position at long 107,000 contracts. Export inspection showed signs of life yesterday, coming in stronger than expected for both commodities. Corn inspections were pegged at 57 mil. bu. While beans stood at 35.7 mil. bu. However, gains were kept to a minimum with the anticipation of the USDA increasing yields on Friday’s report.
We look for the grain complex to open 2 to 5 lower.
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