General Market News
· US Dollar approaching 14-year higher after Yellen speech https://goo.gl/KNh1zt
· Oil prices rise on expectations for falling US crude stockpiles https://goo.gl/FJdwC2
· Fonterra milk prices on the rise https://goo.gl/dowOPl
· Japan’s Central Bank keeps policy unchanged, upgrades economic outlook https://goo.gl/qWgnv9
Class III & Cheese
Class III and cheese bounced on lighter volume yesterday as the market continues to consolidate after last week’s sharp rally. 1,210 class III and 228 cheese futures changed hands in what was a mostly mixed day for open interest.
There’s a lull in direction here. Overall the trend of class III and cheese prices remains up, but we’re in a corrective – mostly sideways – mode now. Given the time of year and the availability of fresh cheese during the spot call, we’d expect the two-sided trade in and around the $1.70 level for cheese to continue. If this is the case, futures may chop a little lower before this correction is over.
GDT auction results will be released this morning and U.S. Milk Production this afternoon. We’d expect a mixed to modestly firm showing for the GDT index overall. Essentially we’re looking for a non-event concerning GDT. As for U.S. milk production, we expect an increase of 2.3 percent on higher milk per cow and a small adjustment higher in milking cows. If prices are lower following today’s milk production report, we’d expect that it is mostly coincidental as opposed to the main driver as concerns (and unknowns) around shrinking global supplies of milk are beginning to overshadow U.S. production.
Dry whey futures generally remain well-supported, but after trading mostly higher over the past 8 or 9 sessions we ought to be looking for a little corrective move. Couple that with yesterday’s low trading volume (just 15 contracts) and a short-term downward correction may be imminent.
We look for Class III and Cheese to steady-lower and Dry Whey steady-higher.
Class IV, NFDM & Butter
Butter continues to surge higher yesterday as spot attached another 5.75 cents yesterday on top of 9.5 cents on Friday. Now sitting at $2.2475 the butter rally has been stronger than we expected, but not totally unfounded. Global fat prices have led the way since mid-summer and are have a larger influence on the U.S. butter market that many would like to give it credit for; after all U.S. butter prices did not follow the world lower a year ago. From a 30,000 foot technical view we can also see quite plainly that the U.S. butter market remains above trend line support – having held that level in October and November. We could see a slower holiday trade develop, but for now the market still looks poised for more strength.
Spot Butter Monthly Chart
Nonfat futures finished mixed with January closing down 0.50 cent. The powder market is finding some level of price balance around the $1.00 level for the time being. That may continue this week, but the overall trend for powder is also higher right now.
The Class IV market has moved higher not on the strength of powder but primarily on butter strength. The Class IV 2017 calendar strip now sits at $17.27, just 30 cents below Class III.
We await the results of GDT this morning with NZX futures anticipating a lower auction. As reported by our European team: WMP volumes offered for trading event 178 were increased by 550 MT. This is the first increase in offered volumes since trading event 165 in June. SMP offered volumes were reduced 200 MT.
The 12 month forecast for volumes was increased by 5,450 MT (1.75%) with 3,300 MT of the increase added to the next 3 auctions (including today). SMP was decreased by 4,800 MT (4%) but actually saw a 1,300 MT increase over the next 3 auctions.
We look for a mixed opening for NFDM, Butter and Class IV.
Soybeans set the tone finishing nearly 15 cents lower on good beneficial rains over the weekend in SA. Additional moisture is expected in the 7-day forecast. Brazil is currently pricing 20 cents/bu lower to China than the US.
Inspections continue to slide and although beans were within the range the weekly inspections were again lower than the previous week. Corn came in below the forecast and with the market questions the USDA as many suspect the reported stocks numbers are artificially low due to increased usage of nontraditional storage (ground bags).
Wheat winterkill worries were unable to keep prices higher amid a generally weaker grain trade yesterday.
This morning prices look poised to open lower this time on fresh strength in the U.S. dollar, which posted its highest move since 2002 earlier this morning.
Calls are for Corn, Soybeans and Wheat to open lower.
USDA Milk Production Estimates
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