General Market News
· Weak China data, stronger Dollar send global stocks skidding lower https://goo.gl/QSTnQP
· U.S. dairy farmers dumped 43 million gallons of milk this year https://goo.gl/Y1gJqN
· NZ farmers back new-look Fonterra governance model https://goo.gl/HElg9m
· U.S. jobless claims at 43 year low; import prices edge up https://goo.gl/9pyG4f
Class III, Cheese & Whey
A lackluster spot session wasn’t enough to prompt aggressive futures selling in oversold territory Wednesday. Blocks remained flat yesterday at $1.5175, while barrels moved 1.25 cents lower and stopped with 2 trades taking place at $1.4575. After two sharply lower trading days both class III and cheese futures looked the other way yesterday. We could chalk this up to a ‘bear-bounce’ scenario for now. Part of this was prompted by short-covering in 2016 contracts. Part of it is a reduced level of sell side interest from producer at a sub-$15 level. And still part of it likely prompted by large option activity. 705 of the November class III $15.50 calls traded between 12 and 18 cent yesterday. The sellers of such calls – at least some of them – would likely be looking to BUY futures as a hedge. So prices rallied.
Although stability in spot pricing has been the cornerstone of discussions over the past few weeks, we note a mild shift in sentiment here this week. Cheese remains largely in balance with little news today to incite a material bump in spot pricing. In fact, discussions point to many buyers having already covered their holiday needs ahead of what appears to be a questionable holiday demand situation anyhow. But the market knows how much cheese we have today and we’re not moving out of the $1.50 ‘pocket’.
Globally $1.50 cheese is truly a rather attractive price level. While we haven’t seen big strides to export cheese at present, we think there remains a value play here for most domestic buyers. The short-term could find the spot market mixed in similar fashion, but we see more moderate upside risk over the next 30-60 days.
Dry whey priced in Europe stabilized over the past few weeks. Yesterday’s quotation report showed unchanged at €850 or about 38.5 cents per lb. US dry whey futures traded flat to slightly lower yesterday on good volume as the mid-30 cent range is an area of trading congestion that we expect to remain in the short-term.
We look for Class III and Cheese to open higher with Dry Whey to open steady.
Class IV, NFDM & Butter
Class IV futures dropped lower yesterday led by the weakness of the butter contracts, shedding 6 to 14 cents in the November through March months, on just under 70 total trades. The selling pressures exert in the butter complex were noticeable ahead of the spot session which brought the spot value below $1.80. With 498 futures contracts trading yesterday, bringing the two day total to 924, hedging activity has been exceptional within the butter market of late. This trading activity is not just confined to the 2016 contracts as one may anticipate with the fast approaching holiday season. Instead concerted hedging efforts have been noticed within the 2017 contracts as manufacturers are thought to be seeking coverage. The weakness in the butter market persists while European butter prices continue to surge higher. The European weekly butter price is now the equivalent of $2.02 per pound.
Weekly butter stocks held within selected storage centers for the week ending October 10th declined by 2.08 million pounds (8.9%) from the week prior to 21.200 million, yet still remain 55.9% higher than during the same period last year.
NFDM futures closed out yesterday’s trade with mixed results as the 2016 contracts moved marginally lower while the early 2017 contracts saw a slight boost in values. The NFDM spot price fell 1.50 cents lower to $0.8700 yet the market’s reaction to this was limited. After nearly two weeks on extensive selling pressures the NFDM market could be poised for a bear bounce, though without a push in the spot value above $0.9000 this price appreciation should be short lived.
We look for the Class IV complex to open lower
Yesterday’s grain trade was driven by the results of the latest USDA Supply and Demand Report which, despite posting figures mostly in-line with expectations, led to vast swings in market values. The grain contracts initially rose higher immediately following the release of the report before tumbling into negative territory into the session’s close. Corn futures ended the day between 7.00 and 8.50 cents lower through December 2017 as corn production was forecast to increase by 11% year over year to 15.1 billion bushels with the USDA calling for a 173.4 bpa yield. The exports estimate was increased by 50 mln bushels as commitments are running well above last year’s figures while the past two months of U.S.-Brazil combines exports are running 20% higher than during the same period last year. Funds were credited with selling 14,000 contracts on the day.
Soybean futures traded within a 25 cent plus range, streaking higher immediately post-report, then tumbling into the lows for the day by the close. Contracts settled between 7.25 and 8.75 cents lower as production was called at a record 4.27 bln bushels, up 2% from last month’s report and 9% higher than last year. This year’s crop is expected to produce a yield of 51.4 bpa, up 0.8 from last month while 3.4 bpa ahead of last year. Funds were estimated to have sold 11,000 soybean contracts, 5,000 meal and 2,000 bean oil.
The wheat market bore the heaviest loses for the day, falling between 7.00 and 10.50 cents, as the USDA increased carryout of 38 million bushels. Feed usage was decreased by 70 mln bushels due to lack of feeding in the June through August months. Funds were estimated to have sold 6,000 contracts throughout the session.
We look for Corn to open steady, Wheat 2-3 higher and Soybeans 1-3 lower.
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