General Market News
· Canterbury residents face water restrictions as aquifers empty out http://goo.gl/NUO33u
· Oil prices up on hopes U.S. supply data will reveal a drawdown
· Obama pledges to push TPP despite diminishing support http://goo.gl/IMh6ok
· European bank rebound not enough to prevent further global stock losses http://goo.gl/zN1sOg
· Ford’s stock plunges as ‘car recession’ bleeds into July http://goo.gl/xhXGlt
· Papa John’s beats street 2Q forecasts
Class III, Cheese & Whey
Yesterday’s spot trade started with steady bids in both blocks and barrels. No offers were made in blocks which were bid 2 ¾ cents higher to $1.76. Barrels were bid 2 ½ cents higher to $1.80 with 2 trades. We should continue to see the block-barrel spread narrow as $1.80 prices will likely shake more barrels lose in the country.
The word of the day yesterday seemed to be ‘balance’ with regard to the current cheese market. Whether or not that is true is not really the point. A balanced market is the perception at present. On one hand, large cheese inventories and healthy gains in milk production out in east and in the Midwest continue to keep plants full. On the other, domestic sales have been better than expected.
Cut and wrapper retail sales are said to be strong. Pizza demand has also been good. Yesterday Papa John’s Q2 earnings showed domestic comparable sales growth of 5.3%. Domino’s Pizza showed domestic sales growth of 9.7% in Q2. Saputo and Land O’Lakes earnings both showed higher volumes achieved for their domestic businesses. Grilling season demand numbers are not as transparent, although with a dip in retail beef prices from last year you could imagine the American BBQ griller has thrived this summer.
The USDA Dairy Products Report will be released at 2pm Central tomorrow. We are expecting American cheese production to come in 1.8% lower in June vs LY, and Other Cheese production up 2.8%. (see table below)
We look for Class III, Cheese to open steady/slightly higher and Dry Whey mixed.
Class IV, NFDM & Butter
Yesterday’s GDT event showed solid strength with the index up 6.6%. The Chinese buyers sharpened their pencils as their presence was evident with WMP prices up 9.9%. Just under 35,000mt of product was sold, which is good volume to see as more product has been sold privately outside GDT. Some of the Chinese buying may be earmarked for delivery in January to take advantage of the favorable tariffs with the new calendar year. This may explain the high spread between front month WMP prices vs the back months. Overall end users are not losing sleep over yesterday’s GDT results. Buyers are still skeptical of the strength and want to see some clear fundamental developments to warrant more aggressive buying campaigns. We still see the gains in WMP as fairly limited as most buyers are assumed to be well covered.
The NFDM spot market fell ¾ cent to 83 ½ cents on 4 trades on heavy selling pressure. The NFDM futures traded lower in a tight range after being bid higher following the GDT auction. Open interest fell by 19 contracts on 197 trades indicating there may have been some short covering done earlier in the day. Quotes out this AM from Europe show German prices up €35/mt to €1,800, French prices flat at €1,740, and Dutch up €20 to €1,770. These quotes all steadily above intervention prices, which should discourage any significant volumes clearing into the EU’s warehouses.
Butter continues to impress as yesterday we saw more of a correction to the heavy selling in the past 2 weeks. Spot butter traded 16 loads closing up 6 ½ cents to $2.2150. Only expectation here is that anyone caught short the past few months with spot prices upward of $2.35 had a huge sigh of relief, and is stepping in for coverage now. Some buyers in the market, large and small users, are much better covered than originally thought as they played defense. This fact may limit the moves later this demand season as we think fewer buyers will be caught by surprise. We look for flat butter production in tomorrow’s USDA report with California continuing to lag.
We expect NFDM, Butter and Class IV to open mixed.
Corn condition ratings reported by NASS showed national Good/Excellent levels unchanged at 76%. Soybean rating rose 1% to 76 good/excellent. The central belt is expected to get favorable rains in the next 5 days. The 6-10 and 11-15 day forecasts shifted to wetter patterns although confidence in the latest reports are low.
On Monday FCStone produced its crop survey from our customer base in the Midwest. We see corn yields at 175bu/acre which means we can see a 15.146 billion bushel crop! Depending on where demand plays out we can see a huge carryout between 2.7 and 3.1 billion bushels. Last year’s carryout was 1.701 billion bushels. This year’s crop has the potential to have the largest carryout since 1987 when the US government was buying grain inventories to raise prices for the farmer.
China’s reserve auction was lackluster yesterday with only 21,000 mt sold out of 2MMT offered. The small volumes traded went for $6.42/bu where import values are close to $6.22/bu. The quality of the reserves is highly questionable. Another note, Brazil made an announcement yesterday they are working to approve US GMO corn for import to fill the gap in its shortage for livestock feed.
FCStone’s crop survey produced a record 48.8bu/acre soybean yield which would calculate to a 4.054 billion bushel crop. If realized this will be a very rare 3 years in a row of yields significantly above the trend line. The S/D tables could show a carryout between 465 and 500 mil bushels depending on the size of our export program and crushings. The USDA has penciled a 1.890 billion crush number for the 15/16 season and the NASS oilseed crush shows we are barely able to meet that estimate. The NOPA Crush report is out later this month which should give us a clearer picture on the pace and momentum.
We look for grains to open higher.
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