Class III milk futures continued its rally into the third straight session yesterday as CME spot cheese continued nudging higher without a seller in sight. Yesterday’s spot market activity was tempered, with only two buyers in blocks and two in barrels looking for product. Milk futures are running sharply ahead of the CME spot market as August milk is pricing near the $1.53 mark and spot cheese is somewhere 11 cents below that mark. However, the recent volume and aggressiveness of futures traders in the August and September contract lead us to believe that spot prices will continue to firm today and into next week. Overnight, Class III futures opened lower on light volume but buyers have since re-entered the market to push prices into the black. Expect a firm market today heading into spot cheese.
USDA released their weekly dairy cow slaughter figures yesterday afternoon. For the week ending June 19, 49,900 head were sent to slaughter, down 19.6 percent vs. the corresponding week in 2009 (due to CWT’s 2009 herd retirement program) but 18 percent ahead 2008’s figure. We suspect there has been some reluctance to cull by producers during the most recent CWT bid period.
Weekly dry whey prices were released by the USDA yesterday and while mentioning a weak undertone in both the Central & Western comments, prices remained unchanged at $0.3450 in the Central and down just an 1/8 penny to $0.38625 in the West. Dry whey futures saw slight gains in the near months and around a penny decline Apr-Oct 2011.
The USDA May Dairy Products Report arrived very close to expectations. With a quick glance at the report yesterday, we noted that cheese looked slightly bullish vs. expectations and butter and NFDM neutral. There are still a number of bearish fundamental factors that lead us to believe that $1.80 cheese is likely not in the near to medium term future, but there were two key revisions listed from the April report that we did not mention in yesterday’s recap. April American Cheese production was revised 1.8 million pounds lower and butter production was revised 5.7 million pounds lower. And this report showed that American cheese production is slowing vs. last year and cheddar cheese production actually turned negative. Since the industry prices nearly all cheese off the CME spot market – which is cheddar only – we believe the results of this report were slightly bullish.
It has been a wild ride for corn prices this week to say the least. We expect that this most recent two-day rally will end just as sharply as it began as traders come to realize that the USDA report of mid-week is not necessarily a game changer. We ought to get a better read on market sentiment, however, after the long holiday weekend. Look for a weaker opening this morning.
7/1 Class III Futures: Volume: 1285 Open Interest (OI) Change: +120 Total OI: 29,973
7/1 Class III Options: Est. Put Volume: 327 Total OI: 21,699 Est. Call Volume: 192 Total OI: 20,885
7/1 Spot Markets: Block Cheese $1.43 (UP 1), Barrel Cheese $1.40 (UP 1/4), Butter $1.75 (UNCH), NFDM: A $1.2300 (UNCH), X $1.2450 (UNCH)
7/1 Other Dairy Futures Volume: Butter: 34 Dry Whey: 16 NFDM: 27 Class IV: 0 CHEESE: 10
7/1 Individual Cheese Futures Prices, Change, Volume & Open Interest
Jul $1.43 UNCH Vol: 0 OI Change: UNCH
Aug $1.517 UP .021 Vol: 0 OI Change: UNCH
Sep $1.566 UP .004 Vol: 5 OI Change: UP 1
Oct $1.576 UP .008 Vol: 5 OI Change: UP 4
Nov $1.56 UNCH Vol: 0 OI Change: UNCH
Dec $1.545 UNCH Vol: 0 OI Change: UNCH
7/1 Individual Class III Futures Prices, Change, Volume & Open Interest
Jul $13.51 UP 1 Vol: 109 OI Change: DOWN 22
Aug $14.34 UP 21 Vol: 522 OI Change: DOWN 52
Sep $14.87 UP 11 Vol: 215 OI Change: UP 39
Oct $14.85 UP 7 Vol: 93 OI Change: UP 3
Nov $14.65 UNCH Vol: 95 OI Change: UP 30
Jul-Dec 2010 Avg: $14.46 UP 0.06/cwt
Jan-Dec 2011 Avg: $14.52 UP 0.01/cwt
UNOFFICIAL JUNE MONTHLY CLASS PRICES
CLASS III: $13.62
CLASS IV: $15.45