General Market News

· Italy sells 5.48 bln euros in bonds as yield fall

· Eurozone July economic sentiment fell to 87.9 from 89.9

· Spanish GDP contracts 0.4% on quarter and 1% on year

· Euro is weak as doubts creep in regarding last week’s supportive statements

· Crude holds the $90 mark tightly

Class III Futures

Friday’s Class III trade showed the continuing development of a cost-of-carry structure, which tends to reflect calmer heads about the immediate supply/demand balance for cheese.  Moreover, such a structure often suggests further price declines as traders tend to increase “bear spreading” or selling the nearby contracts while simultaneously buying deferred contracts. 

Such might have been the case Friday if not for such a lackluster open interest showing, which overall fell by 71 contracts.  The August contract accounted for the bulk of Open Interest declines (-143 contracts) on Friday telling us that there is a heap of long liquidation that is underway as more pressure emerges on the price of spot cheese in Chicago.  We expect nearby contract month price weakness to continue as gains for weather and grain pricing ought to be reflected in the more deferred contract months of 2013.

Class III option Open Interest (both Puts and Calls) is bucking a 9-10 month trend of falling as Open Interest eclipsed the 70,000 mark last week.

We look for Class III to open mixed to lower.

Cheese Futures

Cheese futures finished mixed, mostly lower on Friday on double the volume from Thursday’s trade.  The fact that cheese is making its way to the exchange in a more aggressive manner ought to provide more sell interest for cheese futures to start off the week.  Like with Class III, look for bear spreading to emerge.

We look for cheese futures to open soft.

Spot Session Results

Class IV Futures

Class IV finished out unchanged with no trading activity on Friday.  The rising tides in butter and powder have lent a hand to Class IV prices over the past few weeks, but not so much volume.  Last week that meant about $0.20/cwt for the August to December contracts, which finished with a weekly average of $16.56.  The spread between Class III and Class IV is now less than $2.00//cwt. at $1.82.  Look for more convergence of the Class IV and Class III markets this week.

We look for Class IV to open steady.

NFDM Futures

NFDM futures were steady on Friday with 1 trade heading into the weekend.  The spot market was more active with two trades in Grade A and two in Extra Grade, each up on the day.  Grade A settled up .015 cents at $1.375 and Extra Grade settled up .05 cents at $1.30, both showing signs of strength.  This leads straight into the weekly NASS price increase of .184 to $1.1759, helping the July to December pack average jump up a cent to $1.3242.  Looks like steady footing for the NFDM market with the slow climb taking place on the futures and the physical side.  Eurex SMP came in unchanged on the week at 2,263 in October, while the NZX WMP in July with the price coming in at 2,580 down 50 from the previous week. 

We look for NFDM to open firm.

Butter Futures

Butter futures finished Friday with great volume and mixed price changes.  There were 186 trades in a butter market that was as active as we have seen it since June 12^th when we traded 282 contracts.  We had the 2012 contracts trade down while strength came into the 2013 contracts.  Spot butter jumped up an entire 8 cents from last week on 21 trades on the week and 16 trades just on Friday to settle at $1.67 even.  The July to December pack average fell week over week 5.35 cents to $1.6707, a noticeable drop but much of those gains were made up in the 2013 contracts. The NASS weekly price came in down .95 cents week over week, at $1.5487, helping to push some of the front month futures down.  Butter seems to be changing hands at an increasing rate; we look to see more strong activity next week with the spot market pressing against that critical $1.70 area.  

We look for butter to open mixed.

Dry Whey Futures

Dry whey futures followed the active butter market with 63 trades on Friday.  The volume fueled movement throughout the second half all the way through 2013.  Most of the volume came in September through October, pushing futures up anywhere between .5 and .75 in those months, but 2013 sold off into the weekend.  With the Whey prices mixed, the weekly NASS number came in 1.43 cents higher at $0.5102 helping to support gains in the second half 2012.  The July to December pack average is slightly lower week over week reflecting those changes, landing at $0.56 even, down .0035 cents. 

We look for whey to open firm.

Grain Futures

Corn futures settled dramatically higher on Friday and rallied into the close on continued weather concerns (mostly related to the bean crop at this point) and crop damage (still being tallied for corn and still not yet finalized for beans).  Export sales, marred by cancelations, are summarized below.  The grains will continue to track the weather with the bean crop needing some relief quickly before it is simply too late.  Many end users of corn are turning to alternative grain markets for physical product, which is to be expected with these prices.  December Corn finished up 17 cents to $7.93 ¼.  Beans have been in the driver seat with significant price changes according to the forecast.  We see beans finishing 34 ¼ cents higher in November, settling at $16.01 1/2, over the very important $16.00 mark. 

Old crop net corn sales were actually a reduction of 9,100 tons. New crop sales were reduced by 131,300 tons as China (and another reported unknown destination) pushed back on purchases. Soybean sales did okay, however, as old crop sales were reported at 193,200 tons, up 14 percent from the previous week. New crop sales registered at 517,300 tons.

Overnight started and maintained an off to the races mentality, we wouldn’t be surprised to see another limit up day to day before crop conditions out this afternoon.

We look for corn to open 20-25 higher, beans to open 38-45 higher, meal 14-20 higher, wheat 17-22 higher.

Robert Chesler