General Market News
· Satellite reveals endo of “Unending” N. California drought
· Puerto Ricans could ease South Dakota dairy labor shortage https://goo.gl/nd3KXc
· Saudis see no need to extend OPEC deal beyond six months https://goo.gl/OMZEoQ
· Britain will not seek ‘half in, half out’ EU deal https://goo.gl/mbvZBQ
· GDT Auction underway this morning
Class III & Cheese
Class III futures tallied nearly 1,000 total trades in a mixed/mostly-lower trade Friday ahead of the long holiday weekend. Despite the mixed results, the trade’s focus was upon the February through April contracts, which represented nearly 65% of the total futures trading volume. These contracts finished the day 10-20 lower on a lack of fresh news and a desire to erode some of the price premium to spot. The focus of traders upon these three months was also prevalent in the options market resulting in a majority of the call options traded, and a good portion of the put options trade registered there.
If one looks to options trading as a barometer of market sentiment, then Friday’s efforts would support a bearish view in the near term. Call options traded a total of 940 contracts as open interest grew by just 34. As mentioned previously a significant portion of the call options trade were in the February through April period. For February 256 calls traded with strike prices of between $17.25 to $18.00 while for March 200 of the $17.75 calls were exchanged while April saw 166 of the $17.75 and $18.00 calls traded. While the buy side could have purchased these calls as hedges against a potential counter-seasonal rally amid the spring flush, the sellers of the calls are looking to collect the premiums of contracts whose value has been inflated the past week’s price action.
Conversely when looking to the trading activity in the put options open interest increased by 567 on a total trading volume of 898 contracts – this means the new positions being taken Friday was of the put variety. Trading in the February puts accounted for 609 of the 898 contracts traded, with 599 within the options with strike prices of $16.50 to $17.00.
As the January contract is nearing the end of its pricing period February is the front month most significantly influenced by spot cheese trading activity. The February futures contract, despite its 16 cent decline Friday, still possesses a significant premium to the spot equivalent price amid a seasonally diminished demand period. If anything may be gleamed from Friday’s trading activity it may be that the nearby Class III futures contracts are more vulnerable to short-term bearish price action than last week’s trade indicated at first glance.
Cheese futures experienced a similar fate as the Class III market as contracts at settlement ranged from 1.6 cents lower to 0.3 higher. Again it was the February through April contracts that were pressed the hardest, falling 0.5 to 1.6 cents lower while accounting for 178 of the 256 total trades. The Block/Barrel price spread of the spot market continues to hold at a historically wide range as fresh Blocks are still tight.
We expect class III and cheese to open mixed with dry whey weaker.
Class IV, NFDM & Butter
Trading activity and volatility within the Class IV markets was subdued Friday ahead of the holiday weekend as both the butter and NFDM markets settled mixed. The NFDM futures closed out the day with contracts finishing between 0.425 cents lower and 0.425 higher after the inactivity of the spot session. The market is now focused on the results of today’s GDT auction that is currently underway.
The butter futures were mixed but mostly lower Friday with trading activity mostly contained within the January through April months. Those contracts closed 1.250 cents lower to 0.225 higher after the spot session posted a two cent decline.
We look for NFDM to open lower, butter firm.
Corn futures registered minimal gains of ¼ to ¾ of a penny in the 2017 contract months as the USDA report from the day prior left market bulls grasping for straws in search of supportive a reason for prices to climb in the face of a larger than expected carryout figure. The strength of the soybean market was the saving grace of corn, piggybacking on its strength in order to eke out the day’s gains.
The soybean market continued its post report rally, adding between 2 and 6 ½ cents, though tapered gains into the close as market participants wrestled with the notion that despite a reduction by the USDA in crop yields the resulting 52.1 bushel/acre figure is still an all-time high. Post report the market’s focus now shifts to projections of the acreage mix of crops for the approaching growing season. The bearish outlook for wheat values may cause a portion of those acres to shift to soybeans in the more hospitable growing regions. The price rally of the previous two trading sessions has placed US soybeans at a price disadvantage to those from South America as the surge in prices occurred only domestically.
Wheat contracts closed out the week mixed as contracts settled between 2 cents lower and 2 ¾ higher. The prospects of a potential carryout ranging from between 800 million to one billion bushels will continue to limit any upside potential despite prices hovering in the lowest 10% of their historic levels of the last five years. Wheat contracts look vulnerable to selling pressures to start the week which could handicap the performance of corn.
We expect the grains to open higher on Argentina weather concerns.
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