While the momentum of CME spot cheese, Class III Milk and Cheese futures prices are clearly on the rise since the end of June, Friday’s futures trade appeared to be a week ending corrective sell-off on light volume. Other potential reasons for the sell-off could have been the lone trade taking place in the CME spot block market on Friday at $1.57, the lack of movement of the barrel price since last Wednesday and traders squaring positions ahead of today’s Milk Production report.
However, as Class III prices crossed over the $15.00/cwt level last week August through October and approaching those levels in the fourth quarter, we suspect there are a number of dairy producers eager to lock in or protect these profitable prices and has been some of the trading volume on the sell side. Forward-contracting volume has been on the rise over the past couple of weeks, and we have continued to urge our producers to look at put options as a way to protect their income through the rest of the year.
Overnight Class III futures volume has been light, but September is trading double digits higher. We look for the return of higher spot and futures prices this morning. When prices turn higher, producers often feel a sense of profit security without actually locking up profit margins. After a year like 2009, we don’t blame them for being reluctant to market milk. But we’d advise dairy producers to err on the side of caution and buy reasonable puts on unsold milk for the balance of 2010 as protection against a worst-case scenario. We are holding off on 2011, but over the next three months producers should begin to plan for 2011. Call us if you need help.
It is a busy government report week: Milk Production, Livestock Dairy Poultry, Cold Storage and Livestock Slaughter reports all provide data for the dairy industry to chew on. The June Milk Production Report will be released at 2PM CT today. We are looking for production to come in around 1.3 percent higher with milk per cow figures up 2.6 percent higher than June 2009 and slight increases in month-to-month cow numbers.
Olam International Ltd, the Singapore-based international commodity trading firm, is looking to buy the outstanding shares for NZ Farming Systems Uruguay Ltd to add dairy supply for its trading operations and to try and capture a piece of the growing dairy industry in Latin America.
Grains finished 6 to 7 cents per bushel lower overnight and we suspect they’re poised to trade as much as 10 cents per bushel lower to start the day session. We are in the throws of a weather market and weather markets tend to bring out the speculative traders in everyone. It is much more fun to buy low and sell high than to just sit on your hands or sell a “weather” rally (if you raise corn or soybeans). But classic weather-related rallies tend to come to a close far before people expect that they will.
Russian drought and hot
7/16 Class III Futures: Volume: 625 Open Interest (OI) Change: +67 Total OI: 27,582
7/16 Class III Options: Est. Put Volume: 234 Total OI: 19,588 Est. Call Volume: 46 Total OI: 18,257
7/16 Spot Markets: Block Cheese $1.5750 (UP 1 1/4), Barrel Cheese $1.5250 (UNCH), Butter $1.7750 (UNCH), NFDM: A $1.2175 (UNCH), X $1.2250 (UNCH)
7/16 Other Dairy Futures Volume: Butter: 22 Dry Whey: 29 NFDM: 15 Class IV: 2 Cheese: 10
7/16 Individual Cheese Futures Prices, Change, Volume & Open Interest
Jul $1.456 UNCH Vol: 1 OI Change: DOWN 1
Aug $1.587 DOWN .011 Vol: 0 OI Change: UNCH
Sep $1.595 DOWN .019 Vol: 0 OI Change: UNCH
Oct $1.595 DOWN .015 Vol: 0 OI Change: UNCH
Nov $1.58 UNCH Vol: 0 OI Change: UNCH
Dec $1.58 UNCH Vol: 0 OI Change: UNCH
7/16 Individual Class III Futures Prices, Change, Volume & Open Interest
Jul $13.76 UNCH Vol: 83 OI Change: DOWN 6
Aug $14.90 DOWN 16 Vol: 181 OI Change: DOWN 76
Sep $14.98 DOWN 20 Vol: 197 OI Change: UP 60
Oct $14.92 DOWN 12 Vol: 30 OI Change: UP 21
Nov $14.68 DOWN 15 Vol: 54 OI Change: UP 22
Dec $14.72 DOWN 11 Vol: 43 OI Change: UP 22
Aug-Dec 2010 Avg: $14.84 DOWN 0.15/cwt
Jan-Dec 2011 Avg: $14.58 DOWN 0.03/cwt
These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Commodity trading involves risks, and you should fully understand those risks before trading.