General Market News
· USD continues to slide as the Yen moves back to levels not seen since the Brexit vote, down over 800 points
· Crude oil prices rallied for the 4th consecutive session and is up over $7.00 since the 1st of August
· GDT rallies sharply up 12.7% with WMP up nearly 19%
· Interestingly market data was relatively strong yesterday with housing starts were at their second highest rate since the recession & industrial production showed the most sizeable month over month gains seen in 20 months
· Gold also hit a two week high on the weaker USD
· Lowe’s earnings fall short, profit outlook downgraded along with Target this morning, Wal Mart earnings upcoming tomorrow
· British PMI shows lowest reading since 2009, consumer sentiment shows largest drop in 26 years as first hard data rolls in post Brexit vote
Class III, Cheese & Whey
A body in motion tends to stay in motion and so it went for Class III and cheese yesterday as the trend higher continued on the back of a higher GDT result that saw cheddar spike 8.9% to a $1.4320 USD equivalent. It took a bit for futures to get going, kind of like an old Evinrude outboard motor that takes a couple of cranks before firing up, but after spot failed to provide any sense of direction the path of least resistance was higher. By the closing bell, double digit gains were commonplace through the balance of 2016, which is also where the bulk of the volume was traded, with residual strength well out through the deferred 2017 timeframe. The trade continues to consolidate the bullish price action of the past couple of months and remains at the upper area of the range, poised for a breakout to the upside if either the spot market proves to be the catalyst or if there’s a blip in production reflected in Friday afternoon’s milk production numbers, which are scheduled for release at 2:00 pm CST.
Though it’s difficult to imagine another extreme bullish wave higher, the current trend must be respected as there are scattered, supportive aspects beginning to unfold on the global stage with the EU tapping the brakes on production and increasing cull rates, soft production also stemming from New Zealand, Australia and South America, and the latest tidbit coming in the form of the NMPF request that the government step in and purchase a chunk of cheese in an effort to shore up prices. Granted, the official request comes at a strange time with prices already drastically off their lows and feed prices on the decline, which should already be working to improve on-farm margins. Nonetheless, it’s the psychological impact that will affect the market more than the actual which could present a “buy the rumor—sell the fact” setup. Careful on the timing of that one though as one interesting note from a technical standpoint would be that this has been a “buy the dip” market for quite some time, with the market not closing below the 10-day moving average (gold line on chart below) since July 13th.
September Class III~Daily
We look for Class III and Cheese to open slightly higher, Dry Whey firm.
Class IV, NFDM & Butter
All eyes on the class IV market were focused on the GDT auction yesterday and it produced some fireworks. Notably WMP prices jumping nearly 19% and pulling the all product price up 12.7% a very sizeable gain. While SMP prices were firmer it wasn’t quite enough strength to really push domestic NFDM futures though they did settle steady to 1.450 cents higher on the day. Heavy activity was seen as should be expected given the massive spread between spot and futures, nearbys and deferreds. Nearly 200 trades took place with the vast majority of those in the nearby months, Aug, Sept & Oct. It’s difficult to get too bullish on NFDM for the time being as we’re still just looking to keep pace with the International price gains amid a lot of powder being brought to the market. Yesterday’s spot session saw just a single trade occur but we doubt the excess supply has dried up. Weekly CWAP prices offered some additional bullish news overnight coming in at 85.25 a gain of 5.30 cents from the prior week on volume of ~7 million pounds. It feels like a two steps forward one step back type of market at the moment.
Below we include a weekly chart of the WMP market as one subject that was heavily discussed following yesterday’s GDT auction was the sudden price rally seen last year during this same period only to see that rally fail quickly as we hit mid-September. Certainly it seems justified to wonder if the late season price rally is truly sustainable in the long term but as discussed above the milk production trends seem to be showing signs of weakness around the globe and that may make this rally more sustainable, though heavy inventories still provide a challenge to that line of thinking.
The butter market also saw heavy trading today with over 250 trades taking place but the activity was confined to the 2016 contracts. Which were steady to 3.00 cents lower on the day. Prices came under pressure despite the GDT strength as spot fell by a penny and 4 loads were traded. The seasonal buying interest has sure gotten off to a slow start with the high starting point.
We expect NFDM to open higher as it follows the GDT rally overnight, we look for butter to be steady to higher.
The grain markets appeared headed for a turnaround Tuesday following on the heels of the gains seen on Monday, however the USD dropping over 800 points seemingly wouldn’t allow the market to stay down. By the close corn was up 0.25 cents to $3.3725, beans were down 2 cents to $10.0725 and wheat was up 1.25 cents at $4.3950. There is little to garner from a session such as that however we include below the daily USD chart. As the market moves forward the demand side of the equation becomes the market driver along with South American weather and if the USD continues to slip that makes our products more affordable to the international marketplace. The trend below looks sustainable and likely to re-test the recent lows at 93.00.
We look for the soybeans to open 3 to 5 higher, corn and wheat mixed
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