Dairy markets waiting and watching for milk production report

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Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

Class III futures were higher on the week with Q4 posting a gain of 18 cents per hundredweight, all the while Chicago Mercantile Exchange spot cheese was ¾ of a cent lower. We have consolidated and there doesn’t seem to be much out there to move spot prices either way today. Seasonal demand ought to pick up some and corporate budgets are completed or just about done for most major buy side organizations. There are rumors of delays at a large cheese production facility and concerns that there could be a production problem- though nothing confirmed on this. Talk of a new plant going into Idaho has been strong for months and is heating up in an already tight milk state.   

Volatility is falling off here and that means traders are beginning to snooze; they usually are a woken in a panic meaning a spike in volatility. Overall, we expect that cheese prices will break free from there $1.70 balance sometime over the next two weeks but for today, traders are waiting on a host of fresh news to be released this week.
Cheese futures separated from Class III a bit this week and opened some potential arbitrage doors, we will have to keep an eye posted.We expect that milk and cheese will move together. Friday concluded the week on a firm tone and the week is likely to pick up there as well.

Class IV had some low volume sessions last week but ended with 33 trades last Friday. Prices were 6 cents higher on the week as volatility seemed to evaporate from Class IV pricing. Without this being the “higher of” market, many potential participants have simply stepped away for the moment.   

Overnight class III futures traded only three times, all months were unchanged other than Sept. 12 which was -13, we shall not read anything into that.  

We look for milk to open mixed.

The December corn chart looks bearish. The price has fallen and fallen hard. The price is below the 20 and 50 day MA and challenging to approach the 200 day moving average. Fibonacci levels indicate we have only challenged the first level of support thus far, more challenges likely lay ahead.

The largest hedge fund in the world, the Goldman Sachs Alpha fund, which had over 11 billion under management, has closed its doors. There is strong belief this was a long only fund and was heavy into agriculture. This is not the only large fund to close its door in the last couple weeks. The momentum is lower in all the grains right now, corn is just the prime example, but undoubtedly if the pressure remains, there would be more room to the downside in beans. Late last week frost concerns helped prop up the beans a bit more than corn because of growing season timing, but we will try and “kill the crop” again before it’s out. So you can see while there is pressure, it’s not straight down and there should be solid bounces upward to provide selling opportunities.

Overnight prices leaked further and further into the morning on rain in the SouthWest hitting the wheat price and on outside market weakness as crude, equities and the entire like fell whole the USD soared as though it was once again quality paper.

We look for corn to open 6 to 8 lower, beans to open 10 to 12 lower, meal to open 2 to 3 lower and for wheat to open 6 to 8 lower.

Daily CME spot market prices:

Block cheese: $1.7775 (down 0.50 cent)

Barrel cheese: $1.72 (unchanged)

Butter: $1.9025 (unchanged)  

Grade A NFDM: $1.490 (unchanged)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.  


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