Class III, Cheese and Whey
The Class III and Cheese markets started off the week by breaking out of their recent ranges and making respectable gains. The 4th quarter pack average gained 24 cents to settle for the day at 19.64, and we saw everything from unchanged out in Sept. of 2015 to up 30 cents in the August of 2014 contract. Volume, while not as heavy as it was last week, still put in a respectable showing with over 900 contracts trading hands. Heat was the major fundamental factor as California, Washington, and Idaho have been seeing triple digit daytime highs with little relief in the nighttime hours. All of which, as our readers know, is tough on cows and leads to lower production numbers. We have also heard of a small decline in production numbers in the Southwest and lower component numbers in the Midwest. With schools back in session in the next 30 to 45 days we could see more push to the upside as that pull for milk could make the domestic picture tight. Before we get ahead of ourselves here, note that we have GDT numbers today and the Milk Production Report for June on Friday. Both will give us better marketplace direction in the medium term and we will reserve judgment until we get the data as a one day up does not a trend make.
Cheese markets up in a pretty positive session when spot Blocks and Barrels were bid this morning right out of the gate on the auction. With Barrel prices edging over the $2.0000 mark again we saw more sellers coming to the market to move physical product. As the Block market tried to play catch-up to get the spread back in line, there was not enough momentum and left that market still inverted with Barrels over Blocks, and still outside of the historical norm of 3 to 5 cents. As we have said through other Update articles, as long as the spot markets stay range bound we will continue to see inverted and tight markets. It will take some type of an event to break us out of this range in Cheese. With manufactures producing to fill orders on the books and seemingly increasing their product in storage, they will have to do more to break us out of the current dynamic. Futures prices ranged anywhere from down 0.2 cents in July 15 contract, to up 3.3 cents in Sept. 14 on steady volume in yesterdays’ session.
Dry Whey futures finally saw a little more action yesterday than in the previous session and notably more action in the 2015 contracts than we have seen in a while. One should consider this as more of a follower overall, and what we saw yesterday could be considered value plays in 2015. Traders will expect to see more of that type of action if the Cheese and Class III markets continue up again today.
We look for Class III and Cheese to open steady to mixed, and Whey steady.
Class IV, NFDM, and Butter
Class IV markets were pushed to the upside as well with an uptick in the butter futures market which we will get to momentarily. On a technical basis this gives the August contract a close over resistance of the 10 day moving average and highlights a move up from its current oversold levels. As we are cautiously optimistic about yesterday’s move, today’s GDT auction could easily throw a reversal into the market. We will wait for the news before calling this a full blown breakout to the upside.
Spot Butter was a repeat of Friday’s session with the trade moving down early and then picking back up to end the session. This gave a positive spin to the market and we saw August to October contracts settle limit up on the session. On a technical basis front month contracts closed through near-term resistance levels and could be poised to make a run at the last highs in the market. Again, we will need more than a one day pop in the market to consider if this was just a value play by traders or if we are indeed setting up for more upside.
NFDM markets settle mixed yesterday without any real guidance from the spot session. Volume was also on the low side with only 23 contracts trading hands. This is to be expected given the activity we saw in this market late last week and we’ll expect a quiet morning until we get some data out of the GDT auction. Technically we are at a crossroads in the front month contracts closing right around the 50 day moving average and just above the oversold condition. We will need a break higher to call it a true breakout. Until then we hang at the upper end of the sideways trading range we have been in since the end of June and could see more chop out of this market near-term.
We look for Class IV and NFDM to open soft, and Butter steady.
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