Class III futures traded actively heading into the holiday weekend as nearly 900 trades drove contracts to settle between 9 cents lower and 15 higher. Despite the recent stabilization in the price action, the Class III market, as well as the dairy complex as a whole, still has a mountain of bearish fundamental and technical aspects to overcome before our sentiment changes to anything other than bearish for the near term.
Milk production both domestically and abroad will continue to outstrip demand. Last week’s WASDE report estimated milk production in the U.S. to increase by 2.7% year over year to 211.7 billion pounds. The WASDE report pegs the average price for Class III for all of 2015 at $16.60, $1.35 above the current yearly average.
The second quarter futures pack average gained a total of 12 cents on Friday to close out the trading session at 14.29, while posting a week over week decline of 35 cents.
The U.S. dairy cow slaughter under federal inspection for the week ending January 3rd was estimated at 48,200 head, up 5,800 head (13.7%) from the week prior while 5.9% lower than last year during the same period. Year to date the estimated slaughter for the year is 2.8057 million head, 9.8% lower year over year.
We look for Class III to open mixed, between 5 lower and 5 higher
Cheese futures ended the week with mixed pricing, with strength produced in the nearby contracts with the later dated months failing lower. The 2015 futures settled between 1.7 cents lower and 1.3 higher during an active trading session that saw 739 contracts change hands. The second quarter futures pack average climbed 0.9 cents higher for the day to settle at 1.5410 yet shed a total of 2.87 cents from the close of the week prior.
The National Dairy Product Sales Report (NDPSR) for the week ending January 10th posted with the Cheddar Block price sliding 1.35 cents lower to $1.5984 with sales estimated at 15,434,788 pounds, up 20.4% from the week prior. The Barrel price tumbled further, dropping 3.42 cents lower to $1.5322 on sales volume that grew 17.5% to 10,718,107 pounds. Weekly cheese holdings in selected storage centers as of January 12th were estimated at 96.867 million pounds, up 0.7% from the previous week while sitting 0.1% higher than compared to levels of last year.
We look for Cheese futures to open between 1.0 cents lower and 1.0 cent higher
Dry Whey Futures
Dry whey futures settled mixed, but mostly higher to end Friday’s session. The February contract posted the sole decline, slipping 0.475 cents lower while the remaining contracts settled between unchanged and 1.325 cents higher. The second quarter futures pack average gained 0.6667 cents Friday to settle at 33.3667 while still declining by a total of 1.1000 cents week over week.
The National Dairy Product Sales Report (NDPSR) for the week ending January 10th posted with the price for dry whey falling 0.72 cents lower to $0.5866 with weekly sales estimated at 3,453,282 pounds, down 46.4% from the week prior.
We look for Dry Whey to open mixed, between 2.000 cents lower and 0.7500 cents higher
Class IV Futures
Class IV contracts settled between 14 cents lower and 8 higher, mirroring the mixed performance of both component markets. The second quarter futures pack average shed 3 cents Friday to close at $13.94, yet dropped a total of 44 cents lower week over week.
We look for Class IV futures to open steady
NFDM futures settled between 0.650 cents lower and 0.475 cents higher after a quiet spot session that posted with one uncovered bid and no trades. The second quarter futures pack average slipped 0.216 cents lower for the day to end the week at 105.367 while dropping a total of 4.758 cents lower week over week.
The National Dairy Product Sales Report (NDPSR) for the week ending January 10th posted with the NFDM price dropping 8.39 cents lower to $1.0618. Sales volume for the week was estimated at 7,420,741 pounds, an increase of 119.5% from the week prior. The CWAP index for January 9th came in at $1.0155, down 14.07 cents (12.2%) from the previous week while 48.3% lower than year ago levels. Sales for the week were estimated at 13,139,595 up 175.6% week over week.
We look for NFDM futures to open mixed, between 0.500 lower and 0.750 higher
Butter futures closed out the week with contracts settling between 0.500 cents lower to 1.625 cents higher, with the first quarter contracts falling lower to close the gap with the spot butter price. The second quarter futures pack average gained 0.483cents for the day to close out at 166.800, yet declined by a total of 1.800 cents week over week.
The National Dairy Product Sales Report (NDPSR) for the week ending January 10th posted with the butter price falling 6.08 cents lower to $1.5558 while the weekly sales volume increased 77.6% to 4,489,240 pounds.Weekly butter holdings in selected storage centers, as reported by Dairy Market News for the week ending January 12th, were estimated at 4.124 million pounds, up 29.1% from the previous week while 52.1% lower than 2013.
We look for butter futures to open mixed, between 0.500 cents lower and 0.500 cents higher
The trading of derivatives such as futures, options, and swaps may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Any reference to past performance is not indicative of future results. All references to futures/options trading are made solely on behalf of FCStone, LLC. All references to swap execution and bi-lateral swaps are made solely on behalf of INTL FCStone Markets, LLC. FCStone, LLC will clear swaps when applicable. Swaps are only available to eligible counterparties. All observations of economic, political and/or market conditions are not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. and its subsidiaries and should be construed as market commentary. All recommendations to buy or sell a specific derivative or forecasting statements regarding market activity and the pricing thereof should be construed as a solicitation in any jurisdiction in where such an offer or solicitation would be legal. Proper context and guidance including but not limited to the particular trading objectives, financial situations and the needs of the intended audience were taken into consideration when this recommendation was prepared. Contact your account representative for specific advice to meet your specific trading preferences or goals. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. and its subsidiaries. Sources of information believed to reliable were used in preparing such observations, and no guarantee or representation regarding the accuracy of those sources has been made. INTL FCStone Inc. and its subsidiaries are not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material.