General Market News
· The USD slipped ahead of EU bond auctions in Spain and France later today
· Crude oil reclaims $90 mark
· U.K. retail sales disappoint up 0.1% vs. expectations for 0.5% growth
Class III Futures
Weather has been the driving factor helping to spur the Class III futures higher during the past couple of months, but even the prospects of a continually worsen drought couldn’t keep the Class III futures from selling off yesterday. The trading day started slow, with 2012 prices less than ten cents on either side of unchanged until the drop in the barrel price during the spot session. 2012 settlement prices ranged from 5 to 28 cents lower in an active trading session, as market longs took profits and balanced positions before tomorrow’s milk production report. The Class III market has been in a bullish upswing for roughly 2 ½ months, and looks to remain so, though occasional corrective bouts should be expected. For now the market will look to the upcoming milk production report to determine price action in the near term. Our expectations are listed in below. Please see below the new settlement value table containing values for all of the dairy products and grain markets.
We look for class III to open mixed likely garnering some support from the continued run up in grains.
Cheese Futures
Cheese futures pushed mostly lower on the day with the selling triggered by the 2.75 cent drop in the spot barrels session. The 2012 contracts settled between $0.009 cents higher and $0.026 cents lower for the day, though a majority of the trading activity occurred in the August through October contracts. The August through October contracts managed to post nearly 77% of the total cheese futures trading volume with prices falling between 2 and 2.6 cents lower. The NDPSR released yesterday for the week ending July 14th had the Cheddar block gaining $0.0021 to $1.6444 while the Cheddar barrel price moved $0.0125 higher to $1.6925, with total sales of 11,720,072 and 10,178,584 pounds respectively, both slight gains over the previous week. The cheese futures have been on a bullish tear of late, and the decline in prices yesterday should be viewed as some profit taking and position balancing before tomorrow’s milk production report rather than a transition to a bearish sentiment.
We look for cheese futures to open mixed.
Class IV Futures
Class IV futures trading slowed on the day to just five contracts, with the September and October 2012 contracts managing just two and three trades respectively to settle unchanged. Only the December 2012 contract managed a price change, settling one penny higher on a bid. Though the trading interest was light on the day, the 2012 contracts remain well bid, with expectations for a decline in milk production.
We look for Class IV to open mixed.
NFDM Futures
NFDM futures closed out the day with mixed results as the Sept12 contract fell 1.975 on the only trade of the day to 131.525. The Dec12 contracted managed a gain of .500 on an uncovered bid to settle at 132.500. The lack of action in the spot session, accompanied with the NDPSR results, helped to quiet the bullish trend of late. The NDPSR posted the NFDM price at $1.1575, a loss of $0.0033 on the week, with total sales reaching 17,424,379 pounds which is a 51.4% gain from the week prior. The loss in the NDPSR price coupled with the drop in the CWAP should give the market bulls something to think about heading into the upcoming milk production report, with potential weakness in the market to start tomorrow’s trading session.
We look for NFDM to open firm.
Butter Futures
The butter futures trading volume fell off sharply on the day as the 2012 contracts managed just seven trades. The spot session failed to produce any trade activity, with one offer and one bid posted. The July contract attracted the lion’s share of the trading activity with six trades at the unchanged price of $1.5500. The remaining trade occurred in the September contract which settled down 1.250 cents to $1.63250 while the October contract settled .500 cents lower on an uncovered offer. The NDPSR weekly butter price posted a gain of $0.0342 to $1.5392 with 3,798,337 pounds in sales, an impressive 34.1% gain over the previous week. The butter market looks to remain overall bullish in the short term.
We look for butter to open stronger.
Dry Whey Futures
Dry whey futures finished the day between unchanged and 2.5750 cents lower in the 2012 contracts, while the 2013 contracts traded between unchanged and one penny higher. The NDPSR dry whey price was reported at $0.4959, up $0.0036 for the week ending July 14th, with 9,622,447 pounds in total sales. The 2012 contracts fell in sympathy to weakness throughout the 2012 dairy markets while the 2013 contracts remain well supported by the bullish expectations for next year, aided in part by the long-term effects the current weather issues continuing to plague much of the nation will have not only on the potential milk supply but also on the grain prices which could mean larger feed demand for dry whey.
We look for whey to open mixed.
Grain Futures
A wild trade day in the grain markets, as prices swung from higher to lower in the early trade, only to surge higher into the close. The Dec12 corn managed to settle13 cents higher at $7.84 ½, rallying hard from an intraday low of $7.55 ¾. The soybeans led the charge higher with the Nov12 contract settling 29 ½ cents higher at $16.20, an impressive 44 cents from its intraday low. Weather concerns continue to dominate the market as scorching temperatures remain in the forecast with little chance of soaking rains. August is the vital month for soybean crops, with the now absent rains needed to help fill out the soybean pods. Adding to the bullish market alignment was the statement by Margo Oge, director of the EPA’s Office of Transportation and Air Quality, to a House Energy and Commerce Subcommittee on Tuesday announcing that the EPA is “absolutely not” considering waiving the renewable fuels standard (RFS2) due to the drought conditions that have reduced the corn crop. Below is a chart on the weekly ethanol production and stocks situation, demonstrating that the ethanol grind is now at the lowest level since the EIA began reporting the data in 2010. The chart tends to counter any bullish sentiment taken away from the EPA’s statement, at least in the near term, as the high prices of corn have ravaged the margins of the ethanol industry, forcing some installations to shut down production.
Grain prices opened slowly overnight but by this morning the September contract has traded up through the $8.00 mark and the market continues to backward ate a likely indication of further bullishness to come. Look for corn to open 8 to 14 higher, soybeans to be 25 to 35 stronger, meal up 12 to 20 per ton and wheat to be up 10 to 15 cents.
Robert Chesler