General Market News

· S. Korea shocks with interest rate cut

· Brazil cuts interest rate to historic low 8%, 4 ½ % lower than just last August

· Aussie jobless rate moves up to 5.2% in June

· Supervalu grocery announces it is for sale

· San Bernardino another CA city bankrupt

· Eurozone May industrial output unexpectedly rises

· Europe drops on Chinese slow down fears

· BOJ holds steady on rates affirming recovery

· Euro drops below 1.22 as European bond yields soar

· US equity futures significantly lower

Class III Futures

Futures were mixed on Wednesday, though only the July12 contract posted a loss, falling just one cent.  All remaining 2012 and all of the 2013 contracts pushed higher on the day, with gains ranging between 9 and 39 cents, on a total of 1,198 trades.  The move higher was aided somewhat by the wild trading day in the grain markets, which ultimately pushed lower on the day after substantially rallies, providing some relief to producers.  Continued high temperatures across much of the country will keep up the downward pressure on total milk production levels supporting the market bulls case and pushing prices higher, a trend that has remained intact since early May.        

We look for the Class III market to open higher.  

Class IV Futures

Class IV futures were strong yesterday as the Class III and all products posted end of day gains. There were 2 trades Class IV in September moving the price up 17 cents along with bids in October and November up 29 and 30 cents.  Class IV will see a continued rise with the component prices increasing around it.  That should provide enough support to push the prices. 

We look for Class IV to open firm.

NFDM Futures

NFDM futures were fairly quiet on the day, 4 trades in September bringing the price up 1.75 cents to $1.2975.  The October contract was bid up a half cent showing continued price increases correlating with strong Class III prices and  increased weather concerns.  Coming off of a day with 17 trades, we saw little movement in comparison, but the key was seeing the price continue to trend upward.  Although there were no trades on the spot market, we had a bid and an offer left on the table for grade A, pushing the price up .5 cents to $1.2425. 

We look for NFDM to open firm.

Cheese Futures

The cheese futures pushed higher on the day, spurred higher by the Class III rally and the .5 cent gain in the Blocks during the spot session.  The 2012 contracts settled between $0.004 and $0.027 higher, with the September through December contracts nearing the $1.8000 price level, on a total of 108 trades.  A test of the $1.8000 price level looks to be in the cards, but should provide a measure of resistance as cheese futures prices may be outpacing current demand levels.  We are already starting to see some demand reduction and spot hasn’t even reached $1.70/lb. 

We look for cheese futures to open higher.

Butter Futures

Butter futures traded 25 times yesterday with most of the activity coming in the front month, July, pushing the price down .325 cents to $1.5525.  Overall, futures were mixed down in July and September and up in October and December anywhere from .5 to 1.5 cents. December finished at $1.60.  There was no activity on the spot market, and no trades thus far in the week, there were however a bid and an offer left on the board showing there is some activity ready if there are some willing participants at these prices. Futures participants are reticent to add longs and will only do so to any significant levels when forced by spot price advances; which we think will be diminishing.

We look for butter to open steady.

Dry Whey Futures

Dry Whey futures had a mixed day yesterday for the second in a row.  We saw the front months slide while strength coming into all contracts October 2012 through December 2013 anywhere from .3 cents lower to 2 higher.  Whey has drawn a significant amount of attention, with increasing Class III prices and the rest of the dairy complex on the rise, Whey has been no different.  Steady increases have elevated the forward curve for whey and continue to do so. We are amidst and intense tussle with European whey at the moment, once which should be resolved shortly and likely with U.S. whey dropping a bit.

We look for whey to open soft.

Grain Futures

The grain markets had a day that started with the release of the USDA report and ended with some serious profit taking. This is what the report said:

Summary: USDA does market a favor and pulls Band-Aid off all at once

Corn: new-crop yield cut by an unprecedented 20 bushels per acre to 146.0 bpa, leaving production down a

whopping 1820 million bushels. However, the USDA institutes a barrage of demand cuts to lessen the pain,

including exports down 50 mbu old crop and 300 new crop; 2012/13 feed usage down a sharp 650 mbu; and '12/13 ethanol demand down 100 mbu. Old crop carryout rises 52 mbu, while overall '12/13 ending stocks fall by almost 700 mbu to 1183 mbu. World S&D table mostly affected by massive U.S. balance table changes, with world production down 45 MMT and carryout down 22 MMT, though E.U. crop gains 1.3 MMT. Ukraine production unchanged at 24 MMT.

Beans: old-crop crush up 15 mbu and exports up 5 mbu, mostly offset by a 15 mbu loss in residual use for just a 5mbu loss in '11/12 carryout to 170 mbu. New crop yield cut by a sharp (& surprising) 3.4 bpa to 40.5 mbu, with production subsequently down 155 mbu. However, overall carryout only down 10 mbu (to a thin 130 mbu) due to150 mbu of demand reduction (-35 mbu crush, -115 mbu exports). World production down 4 MMT with stocks down 3 MMT, on U.S. changes; few other global changes.

Wheat: small cuts in imports, exports, seed use, residual all results in a 15 mbu higher old crop carryout; 15 mbu gain in new crop carryin more than offsets a 10 mbu loss in production, with acreage loss outweighing a 0.2 bpa yield gain. New-crop demand boosted by 35 mbu, mostly due to a 50 mbu gain in '12/13 exports outweighing a 20 mbu cut in feed/residual. Overall ending stocks down 30 mbu to 664 mbu, opposite of trade's expected result.

Results: good numbers for bulls on the surface - cuts in corn & bean yields and wheat carryout

drive grains to 15-30 cents higher across the board.

By Matt Zeller

-Grains Commentary Continued Next Page

The recap summed up the initial reaction to the report, and the question then became, was this already priced into the market?  Many traders seemed to think so and started realizing gains slowly, turning it into a major slide only a couple hours after the release of the report.  This sell-off came hard and pushed grains down hard, corn down 25 at one point and front month beans down almost 40 cents.  We saw December corn at $7.04 even after a wild day, only down 13 ½ cents.  As for the beans, many are still bullish more so than corn because there is more damage yet to come if it stays dry (more susceptibility), but it was obvious many were taking profits during the slide, the jump into the close showed that many still think there is significant room to the upside.  We saw November beans settle at $15.22 ½ down 16 cents.  Weather continues to be a concern, so back to the weatherman we go. We might very well fill the December corn gap on the charts and head up from there so be very careful here either way. If you buy corn then buy a put underneath!

We look for the grains to open mixed on some profit taking with fund money coming out of beans and corn still supported on weather and less fund money in that market right now.

Robert Chesler