Morning market update: Higher open expected today

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General Market News

·     Dow notches 15th record high in 2014 closing nearly triple digits higher

·     Agrifax lowered their expected NZ milk payout price to $5.95/kg milksolids after the most recent GDT auction

Class III, Cheese and Whey

The class III market continued to go in the face of weaker international prices yesterday as a very active spot cheese session saw both blocks and barrels close higher. Prices were sharply higher early on only to pull back into and during the spot session. Both the blocks and barrels traded higher only to pull back off the highs prior to the end of the session which went to a hard close. At the end of the session futures were mostly steady to 10 higher but ultimately they were pulled back toward the early morning highs. Aug and Sept each finished 25 higher on the day while prices were mixed from there forward, perhaps alluding to the weaker international prices, from -4 to +7. Volume was very strong nearing 2,000 contracts but interestingly options volume was actually a bit light in comparison. The August contract has climbed back above the short term moving averages but September included below is still in murky waters technically. Short term we’ve shaken off the international news but the longer term charts still show uncertainty.

Cash cheese futures traded strong volume as interest there continues to be very strong. Volume was over 400 contracts on the day as prices mostly followed the action seen in class III. Aug and Sept were each up 0.025 while other contracts were mixed from -0.004 to +0.005. March traded an amazing 144 contracts on the day nearly a ¼ of the volume for a contract still 9 months out. Weekly NDPSR pricing came in at $2.0315 a decline of 0.87 cents from the prior week while the barrel price moved slightly higher to $2.0502 a gain of 0.23 cents. These prices slightly stronger than expected may lead to a continued bounce early in today’s session.

Dry whey futures also partook in the strong volume seen in the dairy complex trading nearly 100x’s with prices mostly unchanged but mixed from -1.00 to +0.075. Most of the activity in dry whey is taking place in the deferred contracts of 2015 as market participants seem to be looking for protection with a lot of uncertainty that far out. Weekly NDPSR came in at 68.76 cents a decline of  0.68 cents from the prior week. Weekly AMS pricing is due out later this morning perhaps shedding some new light on the whey price movement.

The milk production report is due out tomorrow afternoon, estimates included near the end of today’s report.

Class IV, NFDM, and Butter

The class IV market continued to be mixed Wednesday with butter and NFDM playing out their game of tug-of-war. Butter prices continued to move higher while NFDM prices were mostly lower ahead of settlements. Aug through December prices were 1 to 16 higher while 2015 contracts were 5 to 15 lower from Jan through April. Thus far the domestic market looks to be attempting to shake off the continued slide on GDT.

The butter market continues to experience extreme movement on futures despite a lack of activity in the spot session. We were down on the floor during the spot session and after the 19 trades Monday and Tuesday there was a genuine look of surprise when the market closed with no activity yesterday. With the spot session continuing to carry a sharp premium, futures continued to rally sharply playing catch up. Volume was strong with nearly 200 trades taking place and 120 trades in October alone. From Aug through December prices were 1.450 to limit, 5.000 cents higher. The physical marketplace certainly seems to be much more in balance from the reports we are hearing but it may not ready to turn the corner to the downside as quickly as futures were predicting last week. Weekly NDPSR came in at $2.3120 a decline of 2.97 cents from the prior week on volume of just under 4 million pounds up over 1 million pounds from the week prior.

The NFDM market saw heavy volume of over 120 trades as prices were steady to 0.250 lower during the session. That quickly changed following the close and the NDPSR as NFDM came in at $1.8845 a shocking increase of 2.59 cents from the prior week as volume came in at 18.7 million pounds. After the close prices were 0.750 to 2.750 cents higher due to the announcement. We will look for prices to be sharply higher today due to the announcement on NDPSR as the market will continue to anticipate difficulty moving the NDPSR price lower despite what is a reportedly weaker physical marketplace.

While the US market has been able to shed any major influence from the most recent GDT, NZX futures continued to slide overnight with prices lower on all three major products settlements showed $50 to $195 losses yesterday. 

We look for a higher open across the board for class IV and the products this morning due to the NDPSR.

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