General Market News
- Dow hits 20K mark
- USD falls below the 100 mark closing down over 400 points
- Home builders’ sentiment hits highest level since 2005
- Mixed bag on earnings this morning but equities look to open steady to slightly higher
- Caterpillar Inc. showed a decline in sales of 13% during the 4th quarter
- Will the USD impact the Fed’s plan for rate hikes? https://goo.gl/eL8zAk
Class III & Cheese
The class III market was under pressure from the get go yesterday as futures slid lower with both cheese and dry whey futures under pressure. The whey market continues to see some weakness with contracts settling from -0.200 to -1.025 cents from March forward and that kept pressure on the class III forward curve. Settlements on class III ranged from -9 to -28 from Feb through December. Volume was very strong at nearly 2,000 contracts for class III and over 230 trades took place for dry whey as well. To this point the correction we’ve seen has mostly had the look of a correction in a still bullish market and while that hasn’t changed completely we’re certainly seeing some cracks technically. Below we include the April to June pack average which has broken well below the short term moving averages the next few sessions could be interesting here as we could form a double bottom near the recent lows ~$17.25. This was even more pronounced in March where we hit a low of $16.86 and bounced back into the close which could provide some buy side interest today. The spot session continues to see a number of trades as we had 4 blocks and 9 barrels trade hands. The sentiment at the moment seems to be there isn’t too much more downside for the barrel market and that makes sense given that the spread is nearly 20 cents vs. the blocks! Our bias currently is that blocks will likely dip and barrels should stabilize and likely move a bit higher to correct the spread but heavy barrel volumes continue to be seen on NDPSR so this wide spread may not be cleaned up for a while.
Weekly NDPSR for the blocks was $1.7098 up 0.54 cents from the prior week while the barrels were up 0.99 cents to $1.6489. Volume on barrels fell to 11.64 million pounds after 13.7 million last week but that remains very strong compared to the previous weekly averages. Dry whey prices were 44.54 cents a gain of 0.82 cents and helped to support nearby whey values which saw Jan up nearly ¾ of a cent.
April to June pack average:
We expect class III, cheese & dry whey to all open lower.
Class IV, NFDM & Butter
On the heels of the bearish cold storage report butter prices were under pressure yesterday. Volume wasn’t great as we just eclipsed 100 trades and prices settled -0.750 to -3.00 cents from Feb through October. The spot market also fell back below $2.20 settling at $2.1975 but there were no trades. The futures market seems to be pretty well bid at the $2.25 mark and while it will be a slow grind we do expect to see some continued weakness for butter futures in the coming sessions. Weekly NDPSR came in at $2.2711 a gain of 3.81 cents from the week prior.
NFDM saw a bit of a dead cat bounce yesterday with settlements mixed from -0.225 to +0.350 volume was pretty firm over 150 trades taking place but this market still feels relatively weak despite the short respite from the recent sell off. Spot seems likely to find a balance point near current levels for the time being as we attempt to wait out the Chinese New Year but futures carrying a pretty significant premium to the spot market will likely continue to come under pressure until product starts moving into the international market again. Weekly NDPSR prices were $1.0285 a gain of 0.43 cents from the prior week.
We look for NFDM and butter to both open mixed this morning.
Grains continue to be relatively quiet as prices settled mixed on the day. Corn finished up 3 cents to $3.6625, beans were down 3.25 cents to $10.5525 and wheat was down 2.25 cents to $4.2450. Fresh news remains relatively light as we await more solid information from South America on their crop expectations but weather looks fairly cooperative for the areas that weren’t flooded and additional rainfall next week should only continue to boost those yield prospects for the non-flooded areas. Trade deals continue to be a concern under our new President but those fears seem to be just that for the moment and the market seemingly isn’t willing to take much of a stance one way or the other. The USD falling below 100 will help the US be more competitive pricing into the international markets so keeping an eye on exports over the next few weeks seems like a key in addition to watching SA weather and soon their harvest results. Weekly exports come out later this morning.
We expect the grains to open slightly lower this morning across the board.
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