The Class III futures market took an unchanged spot session as decidedly bearish yesterday and retraced a large chunk of Friday’s gains, largely keeping the trading range of the past month intact with a “wax on-wax off” temperament and again raising the question of whether or not the trade is just coiling in consolidation mode, or if bearish headwinds will begin to work prices lower?

With both Class III and cheese futures running out in front of cash levels, the market was ripe for a pullback at the notion of perceived weakness and the reluctance to advance spot prices higher. As far a Class III is concerned, the entire 2015 strip has worked higher since the mid-January lows were put in, albeit in contrasting fashion. Nearby contracts have been trading in a volatile sideways pattern of late, which has featured sharp moves in both directions, while the 2nd half average has been content to consistently add premium, which has worked to exacerbate the carry in the market. At this juncture, both are vulnerable to sizeable downdrafts without a fresh meal to serve up to market bulls. If interest in taking spot prices higher is in the cards, it may prove to be sufficient to extend upside momentum in the short-term. However, the fundamental picture remains more sluggish as ensuing increased milk volumes that are expected to flow from the spring flush, an expected uptick in European production levels, and a high U.S. Dollar remain as serious headwinds moving forward. The trade will be closely eyeing today’s GDT auction results as well.  After two sharp advances in the price index, we expect GDT to lose some of the recent gains today.

From a technical perspective, the behavior pattern of 2015 has been a bit divergent which could prove interesting if the market decides to work lower. The Q2 pack is currently wedged between the 100 day moving average as support (purple line) and the 150 day moving average as resistance (green line). It has also only retraced roughly half of what was lost since September 2014. If the range is broken out of, likely targets to the upside would be the 200 day moving average (black line) and conversely, support would lie at the 50 day moving average to the downside (red line).  The 2nd half average is free and clear to roam to the upside, as it has cleared all major moving averages on the rally that began in late January and recouped to levels close to where the break began back in September. Those moving average levels will all likely act as temporary support on price breaks. All this to say, support for nearby contracts is not nearly as fortified as the deferred months are, and thus the severity of downside momentum could be extreme through what’s left of the 1st half.

The second technical opinion suggests that the market is at, or near, exhaustion levels. The RSI (Relative Strength Indicator) as well as the Stochastic levels should both have had higher readings to close the month than they did at the beginning of February (see bottom margin in charts below). They did not. The high price print was posted at month end for both and that should’ve correlated to higher readings for both the RSI and Stochastics.  I won’t go as far as to say that this divergence is glaring in nature, but that type of failure has proved to be a fairly reliable indicator over time and would indicate technical strength is waning.

CWT accepted 11 requests for export assistance to sell 2.477 million pounds (1,124 metric tons) of Cheddar, Gouda and Monterey Jack cheese, as well as 385,809 pounds (175 metric tons) of butter to customers in Asia, the Middle East, and the South Pacific for delivery in the period from March through August 2015.

Cheese futures didn’t feel comfortable holding ground in the face of a spot session that saw blocks and barrels remain unchanged at $1.5450 and $1.4925, respectively, and subsequently pulled back with Class III. With futures levels running at a premium to spot coming in to today’s session, this type of price action wasn’t a shocker. This market has the feel that it is about to swing large, and the chart below suggests that as well. For the sake of simplicity, I’ve removed most of the noise, with the exception of the 50 day moving average, which should provide support on a move lower. The aqua triangle is what I’d like you to focus on, in that as time moves forward, price action will become “pinched”. This will encourage a breakout in the coming days.

Spot Session Results

































UP 8 ½  



Class IV, NFDM & Butter

The Class IV market was caught in the conundrum of mixed action from its components, with nearby contracts posting higher marks and weaker results in Q3. The market remains in the upper area of its recent range coming on the heels of a strong week to close out the month of February.

A steady and quiet spot session for NFDM triggered sell side activity in the futures market, as traders pulled some premium off the table in an effort to keep prices from getting too far ahead of cash values. Yesterday’s spot action was in stark contrast to last week’s aggressive showing that saw 35 loads change hands, 19 of them on Friday alone. Buy side interest has been active to say the least since late January, with prices rebounding from sub $1.00 levels and volume approaching 200 traded loads since the beginning of February. The futures forward curve remains at a premium to the spot price and in a carry through mid-year, where deferred months converge and flatten out. This is reflective of uncertainty moving forward, as it is widely expected that ramped up milk flow will head into dryers, increasing inventory levels and working to pressure the market.

Butter futures opened the month on firm footing as the spot market popped 8 ½ cents to the upside with 16 loads changing hands, bringing the price to a frothy $1.78. Traders were inspired to add premium to the futures market, which sits at a decent premium to spot levels, however remains fairly flat across the forward curve.  

We look for Class IV, Butter and NFDM to open mixed.


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