General Market News
· Crude oil closes at its highest price in over a year despite a rally in the USD
· The gains for energy prices were driven by statements from Saudi Arabia’s energy minister as well as Russian President Putin about a potential output freeze and also supported equities yesterday
· Activity felt a bit slower than usual yesterday, likely a result of banks being closed for Columbus Day
· Alcoa misses profit and sales expectations sending stock lower
· Dairy price increase pushes Food Index higher: http://www.thecattlesite.com/news/50254/dairy-price-jump-fuels-global-food-price-rise/
Class III, Cheese & Whey
As of late we have talked a lot about the spot equivalent Class III price and a potential bottom being found. The bottom to which we write about is in regards to CME spot cheese, more so barrels then in blocks. Since September 12th the average CME spot price for blocks is $1.57/lb., for barrels $1.49/lb. Settlement prices for spot yesterday was $1.5375/lb. and $1.49/lb. respectively. In fact the average weekly spot price for blocks has only moved $0.0005/lb. lower from the last week of October till this past week. The barrel average went unchanged week over week at $1.4810/lb. The inactivity in price movement coupled with lower sales volume (zero blocks traded last week and only 11 barrels, compared to 40+ the previous 3 weeks) does in fact point to slow down in downward pressure. This brings us to the spot equivalent Class III price. Yesterday it stood at approximately $14.47 cwt. The October Class III futures contract settled at $14.86/cwt. Keep in mind the October futures contract already has 1 week of pricing built into it. Now, if spot continues to hold steady and NASS basis slowly erodes, non-front month futures will inevitability have to break the $15/cwt. barrier.
Class III and Cheese futures finished lower yesterday. Most of the weakness was witnessed in the 2016 contracts. Volume was slightly below average at 868 for Class III and 302 for cheese. After yesterday’s move lower the market seems to have a reasonable carry premium built into it for this time of year. Spot will be the main driver this week in the absent of any fresh data for the dairy markets.
We look for Class III and Cheese to open lower with Dry Whey to open mixed.
Class IV, NFDM & Butter
Spot butter moved lower for the 10th time out of the last 11 trading days, losing 15 cents during that time. CFTC data released last week shows the “other” category has increased their short position by 517 contracts week over week. Recent weakness does not seem to be longs being squeezed out of their positions rather new shorts entering the market as open interest continues to increase on strong volume. We could potentially see some profit taking in the coming days. Keep an eye on open interest changes, as to not mistake a seasonal move higher with the above mentioned profit taking.
NFDM futures lost on average ½ cent through June of 2017 yesterday after spot moved under 90 cents for the first time in over a month. The seasonal move higher in pricing looks to have hit major resistance. As we mentioned yesterday exports of NFDM/SMP were high for August and are above 2015 volumes cumulatively. However, this was mostly lead by sales to Mexico, whom we’ve heard reported to have been quiet so far this month. However, domestic prices are at a discount to NZ and EU which should support export sales to other regions in the coming months/weeks.
Crop progress reports were delayed due to the holiday yesterday. Soybeans harvest is projected above 50% complete and corn is being pegged between 40-45%. Weather delays have be kept to within a select few areas across the south-central corn belt. Despite a rally dollar corn has been able to rally, picking up a couple cents yesterday on news that Brazil might import some U.S. origin corn as more GMO varieties get approved. Beans were slightly lower yesterday as the market with no real fresh news. Crude oil continued it push higher yesterday after experiencing some profit taking Friday. Funds were thought of to be buyers of 5,000 contracts and net on beans for the day. Forecast remain dry for the majority of the corn belt.
We look for Corn to open 1-2 lower, Wheat 2-3 lower and Soybeans 1-2 higher.
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