Markets:
General:
AM price moves: USD +0.318 @ 80.050, Euro -52 @ 1.3193, Crude -0.64 @ 107.45, Copper -0.0665 @ 3.8425, Gold -21.0 @ 1,646.3, Dow futures -67 @ 13,100, S&P -7.90 @ 1,396.10, NZ Dollar -106 @ 0.8114, Yen -55 @ 1.1945, Canadian -47 @ 1.0088
- The USD dipped 300 points yesterday triggering a moderate rally for the general commodity markets but trading activity was relatively quiet as crude closed just shy of $1.00 higher
- Equities market closed slightly higher yesterday but overnight markets have reversed course and are set to open lower today
- China raised retail gasoline and diesel prices for the second time this year by 6.4% and 7.0% respectively
- UK Feb inflation rate slows to 3.4% down from 3.6% in January
- Today’s reports and the week ahead at a glimpse:
http://www.cmegroup.com/daily_bulletin/Section04_Agricultural_Soft_AltInvestment_Futures_2012053.pdf
3/19 Class III Futures: Volume: 959 Open Interest (OI) Change: +176 Total OI: 31,756
3/19 Class III Options: Est. Put Volume: 558 Total OI: 40,089 Est. Call Volume: 319 Total OI: 37,152
3/19 Other Dairy Futures Volume: Butter: 26 Dry Whey: 7 NFDM: 1 Class IV: 0 Cheese: 108
3/19 Individual Class III Futures Prices, Change, Volume & Open Interest
April 12 $15.84 UP 2 Vol: 336 OI Change: UP 17
May 12 $15.30 DOWN 20 Vol: 268 OI Change: UP 90
June 12 $15.68 DOWN 20 Vol: 136 OI Change: UP 44
April to June Class III Avg. $15.61 Down $0.12/cwt.
April to June Class IV Avg. $15.18 Unchanged
Dairy: Class III and Cheese
Spot Markets:
Milk Production Report:
In our opinion today’s milk production report was bearish even in comparison to the extremely bearish expectations. Producers continue to add cows and continued warm temperatures have kept milk production unseasonably strong. This marks the 4th consecutive month that total milk production has exceeded our estimates. Total milk production was stronger than anticipated once again due to an increase in both cow numbers and milk per cow.
In addition to the strong milk production for February, the January milk production was also revised higher marking the third consecutive month where revisions were made to the upside. The 23 state milk production came in 4.3% above a year ago(on a daily avg. basis) at 16.28 billion pounds in February. Milk cows increased by 9,000 head from January to 9.25 million. Interestingly the market in post settlement electronic trading is not seeing a sharp reaction to the report thus far. One of the comments we were making in the office here pre-report was ‘How can this report be bearish with everything that’s been priced in?’ We wondered aloud if it was possible to see a bearish reaction and so far despite the numbers the answer seems to be no, but the spread movement from earlier in the day reinforces the bearish outlook as May moved sharply below April and June move to almost even with the April contract. This report should reinforce the market’s belief that lower prices are almost inevitable but adds to the confusion surrounding the strong spot cheese market prices.
Milk production in 23 major states during February was 15.16 billion pounds, up 4.6% (on a daily avg. basis) from a year ago. Production per cow in the 23 states was 1,782 pounds up 117 pounds from the same month a year ago a 3.3% increase on a daily average basis and up a very strong 2.5% from January. Cow numbers in the 23 selected states totaled 8.510 million head, an increase of 8 thousand head over the January estimate.
For the estimated all US, February 2012 milk production was 16.28 6illion pounds, up 4.3% from a year ago on a daily average basis Milk yield per cow for January was 1,760 pounds per cow, up 115 pounds from the same month a year ago a 3.3% increase on a daily average basis. Cow numbers for the U.S. in February were 9.250 million head up 9,000 head from the January estimate of 9.241 million head which was revised higher by 5,000 head from the previous estimate.
This month not one state showed a year over year decrease in total production Only PA (+3.5%) and VT (+3.0%) showed an increase of less than 4.2%, OH and MO were the only other states under 5.6% growth. Five states showed a double digit increase in total milk production led by UT (+12.4%), CO (+12.2%), AZ (+11.9%), CA (+10.9%) and IN (+10.0%). Eastern states seem to be lagging in milk production increases due to mostly steady cow numbers while the milk per cow gains are relatively consistent across the U.S.
Class III futures were lower on Sunday night and losses of 10 to 20 cents held right up until the spot session yesterday. When the barrels gained a penny and blocks closed unchanged with a bid futures prices rebounded led by April. On the day March and April each closed 2 higher but May through September couldn’t manage to climb out of the hole ahead of the milk production report. May through July closed down 18 to 20 cents and remaining 2012 months were steady to 5 lower. By the time the milk production report came out prices were down as much as 30 cents post settlement electronic trading. We were surprised by the lack of follow through selling after the report came out but it was hard to believe that much more selling could take place until the spot cheese market can break. This week may see some continued strength but we don’t believe it will be long until the sales come given the extremely high milk production.
Cheese futures saw decent volume on the day as 108 trades occurred and prices followed along with the Class III market slightly higher in April but mixed to mostly lower from there forward. April was up 0.015 while May through Sept closed lower by 0.005 to 0.026.
Class IV trading saw zero trades yesterday in unison with the light volume seen on butter and NFDM. All months closed unchanged except September which was down 19 cents on offers.
Overnight trading was very quiet with just 11 total trades, 7 of those in March which was up a penny while July traded down 13 cents and many nearby months were offered lower. By this morning prices are still mostly lower from steady to -18 in June and total volume is up to 35 trades.
We look for Class III to open lower.
NFDM, SMP, WMP:
NFDM futures saw just one trade yesterday in July which closed unchanged as did all other months. The milk production report is certainly bearish for the powder market so we would expect some pressure to start out the day. GDT is later this morning however and while prices are expected to be relatively quiet any unanticipated large move could shake up futures.
We look for NFDM to open slightly lower.
Butter:
Spot butter prices were once again on the move to the upside gaining ¾ of a cent however no trades occurred yesterday as we closed with a lone bid on the board. Futures prices responded to the continued spot increase by closing mostly higher on the day. 26 total trades occurred, light volume as was the case across not just the dairy markets but seemingly all markets on Monday. April through July closed 1.000 to 1.500 cents stronger on the day while August was up 0.300 despite no trades occurring and other months were unchanged. Given the recent spot market gains and reports of export activity we would look for GDT prices to be slightly higher today. While a stronger GDT and likely continued spot market gains should move prices higher today we don’t expect the rally to last very long at all given the extremely high milk production.
We look for butter to open firmer.
Dry Whey
Dry whey futures were very quiet to start the week with just 7 total trades on the day. April was down 0.275 and July was down 1.500 all other months were unchanged. Prices may remain quiet until later in the week when we get DMN prices as the market has been jittery.
We look for whey futures to open mixed.
Grains:
Grains were lower from the outset led to the downside by wheat as Russian exports have picked up of late. On the day wheat closed down 19.75 cents to 652.25, corn dropped 9.5 cents to 663.50, meal was down 3.50 to 370.90 soybeans finished the day down 7.50 cents at 1366.50. Early planting now started in parts of Missouri, Illinois and Iowa on corn with weather forecast pointing to an unseasonably warm April. Technically the market looks as though a sizeable break could be on the horizon ahead of the stocks and planting projections at the end of the month and overnight prices are confirming the downside move with corn down 6 cents, soybeans down 10 and wheat off 7.
We look for corn to open 7 to 10 lower, for beans to open 9 to 12 lower, for meal to open 3.0 to 4.0 lower and for wheat to open 7 to 9 lower.
Robert Chesler