General Market News
· US GDP disappoints up 1.2% vs. expectations for a gain of 1.8% triggering a 1.230 point decline in the USD
· The weaker USD triggered a turnaround for crude oil which settled higher for the first time in 7 days
· Moody’s says New Zealand banking system stable despite dairy sector distress
· ANZ Bank of New Zealand says positive cash flows unlikely to return for dairy farmers until 2018
· Dairy Crest announces slight increase for September milk price: https://www.farminguk.com/news/Dairy-Crest-announces-1ppl-increase-in-September-milk-price_42670.html
· Fonterra leaves price forecast unchanged: http://www.smh.com.au/business/fonterra-says-forecast-payout-for-current-season-unchanged-20160731-gqhxlr.html
Class III, Cheese & Whey
Friday’s session saw the class III market trade mixed yet again as we continued to struggle to find direction. Settlements ranged from -9 to +4 cents on the day and volume remained relatively light as well. The marketplace continues to focus on the spot market for direction but Fridays’ session saw 4 trades occur in the barrel all at unchanged. While there still is some tightness in the barrels the market now seemingly is looking to keep the spread between blocks and barrels under control with reports that blocks are readily available and the basis seems to be slipping.
While we are heading into peak demand season the massive carries that were in the marketplace have finally faded and that likely means over the coming weeks/months there will be an unwinding of the cash and carry trade which should lead to some pressure on fresh cheese as the inventories out there offset some of that demand. Ultimately a reduction in inventories will be a bullish influence but that will take some time to occur and sans a weather driven decline in production it feels as though the spot market is likely topped out for now. We don’t expect a sharp turn lower but likely more consolidation of futures in the mid 16’s for class III.
The cheese market traded light volume on Friday with just over 130 trades taking place. Settlements were mixed form -0.003 to +0.009 on the day. Whey futures were also relatively quiet with under 20 trades taking place and futures settling mostly unchanged to +1.2250 through the first half of 2017. Weekly AMS prices were up 3.46 cents on the block to $1.6211 and barrels were up 4.70 cents to $1.7123 but the volume was under 9 million pounds for the first time since March. Whey prices were up 0.84 cents to 28.21cents.
We look for Class III, Cheese and Dry Whey to open steady/mixed.
Class IV, NFDM & Butter
The class IV market was mostly lower on Friday as the butter market continued to be under pressure and NFDM was mixed on the day. The spot NFDM market traded 7 times on Friday and activity continues to be heavy with the market trading in the mid 80’s. The class IV settlements ranged from +6 to -27 on volume of 17 trades. NFDM futures were active as well with the good spot volume with over 50 trades taking place and settlements ranged from -0.125 to +1.575. The international marketplace continues to see a little upside but prices continue to struggle to get above the 90 cent mark. We don’t see that changing in the short them and that likely means that futures prices will need to fall given the large cost of carry in the market.
Butter futures finished Friday’s session mostly lower from -4.00 to +0.125 on good volume of over 150 trades. The spot market finished down 3.50 cents at $2.1350 and while we finished lower the market did come off of the intra-session low of $2.1300. This is the lowest spot has been since the first few days of June and buyers are stepping back in as there is certainly still fear of a seasonal run in the coming months. Weekly AMS prices were up 1.07 cents for NFDM at 84.72 and butter was up 0.17 cents to $2.3098. The market will be looking to GDT tomorrow for price direction on NFDM.
We expect NFDM, butter & class IV to open mixed.
The US Q2 GDP announcement on Friday morning seemed to have a pronounced impact on the grains Friday. The result of +1.2% was well below expectations for an increase of +1.8% and businesses cut fixed investment by 3.2% the largest drop since 2009. All of that led to a severe drop in the USD which fell over 1.200 points to the lowest level since the Brexit vote. As the USD dipped soybeans seemingly fed off it and kept running higher throughout the session closing near the highs ahead of the weekend and the ‘fear’ of heat and dryness in the forecasts. We still can’t seem to find any issues with the weather but the market sure likes to play it up lately. Beans finished 25 cents higher at $10.03, corn up just 4 cents at $3.4275 and wheat down 2.50 cents at $4.0775. As you can see in the corn and soybean charts below the bounce Friday is likely to run into some resistance today, beans may have a little room to run but much will continue to depend upon the weather.
Daily November Soybeans:
Daily December Corn:
We look for corn to open 2 to 5 lower, soybeans down 15 to 20 and wheat mixed.
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