General Market News
· European stocks retreat as Dollar rally fades before Yellen speech http://goo.gl/dL0FtO
· Central bankers eye public spending to plus $1 trillion investment gap http://goo.gl/SKAI5L
· EU milk output surge ‘over’ boding well for prices http://goo.gl/EKt7HM
· Fonterra milk price boost to add $1 billion to economy http://goo.gl/8fyrsd
Class III, Cheese & Whey
Hairline stress cracks have been rippling under the surface in Class III and cheese for the past few sessions with yesterday’s action giving way to something resembling more of a fracture. Sellers swept the legs out from under the spot market driving both blocks and barrels to parity at $1.78. In all honesty, the double digit losses in the futures probably should’ve been more severe than they were, so in a sense the market held up pretty well with the September contract leading the way into the red by shedding 30 cents. Based on the spot equivalent, the losses could’ve easily been flirting with limit down, which indicates that the trade remains quite wary of overcommitting in either direction and will likely require additional spot pressure as proof that the move is legit and not just “one-off” in nature.
Outside of that, we’d be remiss not to comment on the heavy volume in the futures, where over 2,000 Class III contracts traded, the bulk of which changed hands in the September-October timeframe. The noticeable absence of spot bidders who have been present for months is also a question mark from yesterday’s trade. Where did they go? It is questions and dynamics such as these that keep the trade on its toes and likely kept this thing from completely falling apart yesterday however, the dawn brings a new day and it’s not implausible that this thing could be headed over the cliff sooner than later. Grain prices remain under pressure, combines will soon begin to roll, cow comfort levels will improve, inventories are at record marks, and generally speaking, we’re at levels that feel unsustainable. From a technical perspective, we’ll take a look at the October Class III chart, where $17.00 is a level of interest both psychologically and also where the 20 day moving average lies (blue line). If that level is breached, $16.51 is becomes a target, with the 50 day moving average (red line) in close proximity as well as the first level for Fibonacci retracement.
For the week ending 8/20, the National Dairy Products Sales Report reflected blocks advancing to $1.77 on steady volume of 13.3 million pounds, while barrels surged to $1.88 on increased sales volume of 10.3 million pounds. Dry whey was steady to weaker, coming in at 0.28 on steady sales volume.
We look for Class III complex to open lower.
Class IV, NFDM & Butter
Is the light at the end of the tunnel? Could butter in Q1 really be trading under the $2.00 level? Well…..it seems to be at least for the first time since April. While the $2.00 has been a level of support, it appears that we have finally cracked through it, at least in Q1. On the heels of a heavy stocks report traders may be reassessing current fundamentals, especially on the demand side. If demand really is so great, why are stocks at historic highs? In any case, traders should take caution. Should recent history repeat itself this 2 dollar level could spur a whole new wave of buying.
NFDM is quiet this morning with February being the only month trading overnight. While a bit weaker as of late, NFDM continues to be rather range bound. On the international front NZ exports for SMP in July came in at 40kt, up from 33.6kt in June and 27.7kt a year earlier. Again China was the top destination, with 12.3kt, almost flat with June and down 3kt from July15 (-26%).
NDPSR for the week ending August 20th reflected an average price of 86.7 cents for NFDM, an increase of 1.4 cents from the previous week. Butter prices averaged $2.25, an increase of 2.8 cents from the previous week.
We expect the butter and Class IV to open steady, NFDM mixed.
Corn has traded within a 10 cent range now for more than a month. That continued yesterday with most contracts settling 1 cent lower. In the overnight futures were more mixed +/- 1 cent to unchanged. The dollar has fallen from 97 to 94.5 during that same time, which may have been supporting corn. Funds have been increasing their short position all this week. Yesterday they were thought of to have sold 3,000 contracts, 22,000 total this week, and -165,109 net. If corrected, funds are holding their longest short position in over a month. Then pro framers tour continued into Illinois and Iowa. Estimates are pegged higher than both last year’s crop and the 3 year average.
Beans were down were down 3- 5 cents during yesterday day session and 4-7 lower in the overnight, breaking through the $10.00 barrier. A crop tour that has showed higher than expected pod counts has been weighing in on the market. Funds have been noticeable quite the past 2 weeks, with estimates pegging their net position at long 93,510; right where they were a week ago.
We look for the grains to open mixed, corn and wheat slightly higher while soybeans down 3-7 cents.
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