10^th Annual INTL FCStone Outlook Conference- June 20-21

Register HERE: http://www.regonline.com/builder/site/Default.aspx?EventID=1181400

• Featuring keynote speaker Gene Epstein from Barron’s Magazine, we will highlight Outlooks of all sorts starting with the macro economic forecast:

– Dairy commodity S&D and price outlook

– Grain & oilseed outlooks

– Meat & livestock

– Technical perspective

• *But this year there’s more: for the first time we will have panels covering regional outlooks. What does Ireland’s dairy industry have in store after quota’s are lifted and what are the impacts to world supply flows. How about India? What are the impacts of their demand increases? We’ll answer these questions and more with you in June.

General Market News

· The Fed minutes revealed that some officials are willing to taper QE as early as June this triggered a sharp reversal in equities the Dow traded to as much as 155 higher before dropping 80 points at the close

· Crude oil suffered a second consecutive day of losses, -1.90, on the hells of five straight higher days as weekly DOE reports showed disappointing demand

· Euro zone PMI rises to 3 month high at 47.7 still showing contraction but beating expectations

· The Japanese Nikkei fell by 7.3% yesterday its worst daily loss since March 2011. Weak Chinese manufacturing data in addition to the Fed minutes triggered the sell off.

· Chinese PMI dropped below the 50 mark showing contraction this month at 49.6

· In response to the steep sell off in the Nikkei the BOJ is offering 2 trillion yen in short term loans and will also be implementing two bond buying programs totaling Y810 billion 

Class III, Cheese & Whey Snapshot

The slide lower continued yesterday with Class III settling anywhere from +4 to -12 on the day. Although Class III did end the day weaker, we did not see the types of large double-digit declines seen as of late and prices closed well off their lows. Currently the Class III July – Dec pack is trading near $ 18.54, roughly 30 cents off its May high of $18.84. Those being said, do not expect the move lower to be over with as the second half still looks poised to retest recent lows ($18.54) made mid-May.

From a seasonal perspective milk production generally peaks in May. Combine this with declining international prices, a stronger US dollar, favorable New Zealand weather, more milk going into manufactured products, lower export demand, and healthy inventory levels and you have quite a few factors supporting bearish momentum. All of this we have mentioned and we feel a bit repetitious, unfortunately the market may be “stuck in the mud” until the weather and demand picture become a bit clearer.  Currently four counties in eastern Idaho are experiencing drought conditions and California’s snow pack is below average, though not critical. Weather maps show 90+ degree heat across the southern US including AZ, NM, TX and FL for the next week and although the short term fundamental picture may look bearish, some excessive heat and dryness could once again have us burning through stocks. Short term we expect the market to continue on a downward trend, that being said, it may make sense to examine option strategies during this dip to protect against such a weather event.

Cheese futures settled anywhere from +.005 to-.011 on the day while dry whey closed -.75 to UNCH. The NDPSR for week ending May 18^th show Cheddar Cheese prices for US 40 pound blocks averaged $1.8847 per pound, a decrease of 0.35 cents from the previous week.  Barrels averaged $1.7627 per pound, an increase of 2.08 cents.  Dry Whey averaged 57.20 cents per pound, a decrease of 0.48 cents from the previous week.

The CME is launching a new inter-commodity spread capability for Class III/ Class IV effective June 2. This will allow customers to trade the spread between Class III and IV concurrently on the Globex Electronic Platform greatly enhancing customer ability to utilize these two markets together where needed. This news was officially released the 20^th but with a launch date of June 2^nd we chose to wait until after the CME FCM/IB dairy meeting earlier this week to have an opportunity to nail down details for you should you have further questions. We look forward to helping you utilize this new product offering.

http://www.cmegroup.com/tools-information/lookups/advisories/electronic-trading/20130513.html#MIL

The overnight pressure on Class III continues, we look for the market to open steady to 15 lower, cheese to open lower and dry whey steady.

Cold Storage Report

In our opinion, today’s Cold Storage report was slightly bearish cheese prices and bearish on butter.

Today’s cold storage report saw butter stocks increase to 310.7 million pounds a sizeable 22% gain month over month and up 22% vs. year ago. Stocks levels continue to be substantially above historical averages and the growth in stocks this month exceeded our expectation by just over 9 million pounds. With reports of stocks continuing to grow during the month of May downside pressure should be expected on butter futures. 

Cheese stocks also saw an increase this month though slightly lower than our expectations. March American cheese stocks were revised higher by 4.5 million pounds and that left April ending stocks at 698.8 million pounds just above our estimate of 695.6 so the revision accounts for the differential. The growth in stocks represented a 2% gain month over month and a 5% gain year over year. Other cheese stocks were slightly below expectations at 421.4 million pounds but remain well above their historical average. Total cheese stocks were 1.120 billion pounds this month an increase of 1% vs. March and up 4.5% year over year. Despite other and total cheese stocks coming in slightly below our expectation the revision in American cheese stocks and subsequent larger than expected total in combination with stocks remaining well above their historical averages gives us a slightly bearish lean.

Spot Session Results

Class IV Futures, Butter and Powder Snapshot

Butter futures settled anywhere from -.85 to +.50, while NDFM settled UNCH to +.50 on the day.  As mentioned yesterday’s Cold Storage report reflected a sizeable gain both month over month and year over year.  Seasonally a lull in demand is expected leading up to the summer months.  However, weather this spring has not been cooperating to increase ice cream demand either leading to a record number of stocks.  Although retailers have been promoting butter in print ads along with featuring ice cream ahead of the Memorial Day holiday, the abundant inventories should continue to weigh on the market as noted above.   The NDPSR for the week ending May 18^th show butter averaging $1.6387 per pound, a decrease of 3.95 cents from the previous week.  NFDM for the same time period averaged $1.6338 per pound, a decrease of 0.59 cents.

Butter futures look to open mostly lower while NFDM should open mixed with Class IV steady to slightly lower. 

Grain Futures

December Corn settled up 10 ¼ cents to 530 ½ while Nov Beans settled up 18 cents to 1238 ¾.  Ethanol production figures along with new crop sales to China helped fuel this surge.   With some looking are looking for China to buy 10-12 mmt of corn to help replenish reserves the USDA is now forecasting China to now be a permanent large importer.  There is roughly 15% of corn acres unplanted which may spur conversations as to whether beans could replace.  Soybeans traded higher today despite weakening in the old vs. new crop spread.  Reports of some soybean movement out of both the domestic producers as well as Argentina have seen basis retreat a bit of late and the spreads will need to be closely watched. Export sales released later this morning will likely play a big role in where the spreads particularly July/Nov soybeans moves in the coming sessions.

We look for corn to open steady to 3 lower, soybeans mixed from -3 to +2, meal mixed from -1.5 to +2.5 and wheat 3 to 6 higher. 

Robert Chesler