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Early Morning Update - April 10, 2024

By: Dairy Team - Chicago, Dairy Chicago

 

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Equities are under pressure this morning as The CPI rose 0.4% for the month, putting the 12-month inflation rate at 3.5%. Wall Street expected a 0.3% gain. While this may not have immediate implications for dairy markets this morning, we highlight this at the top of our comments today because of the potential implications of resurfacing inflationary pressures on commodity markets and money flow. Money managers are not just short Class III and Cheese futures. They’re broadly short grains ahead of planting. While there is not much of a bullish fundamental story for grains this morning, the position of speculators ahead of US growing season had us a little concerned for short-covering rallies. Modest upticks in inflation readings recently (including this morning) may eventually add another reason for money mangers to cut and run from bearish positions in ag markets. Historically they don’t like to be aggressively short commodities during times of increasing inflation.  

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Class III finished mostly lower yesterday while Cheese futures finished mixed. Dry Whey spot and futures weakness seemed to weigh more aggressively on the Class III market rather than the turn lower for spot barrels. Granted, spot block cheese gained 2 cents, but the takeaway from the spot trade yesterday was: there is fresh cheese available around current levels. Ten block loads traded, just 3 barrels. We called for a market consolidation in yesterday’s letter to you and we’ll call that what we saw in yesterday’s activity. After a sharp 3-day rally, the market took a breather. Technical support is still below current levels and the carry structure of the market (bearish) is still alive and well. After a swift rally like we just saw, expect some folks out there want to buy dips, which may limit downside here unless spot collapses.

Class IV, Butter and NFDM markets all traded mostly higher yesterday despite stable to lower spot market action. Butter futures was mostly higher further out on the forward curve and well into 2025. April to August Butter futures closed lower. These big beefy bull markets need news to move higher and outside of an apparent never ending stream of derivative buy side hedge interest along the forward curve, there’s not much fundamentally that would suggest demand for bulk butter is red hot. Trade volume was still rather lackluster with 156 contracts changing hands yesterday but this time open interest increased by 50 contracts.

Class IV actually took the limelight yesterday with another tranche of heavy trade volume in 2025. In fact, of the 465 Class IV contracts that traded yesterday, 460 occurred in the January to June 2025 timeframe. Open interest rose just 4 contracts.

NFDM firmed yesterday on light volume of 149 contracts (OI up 28) as the market continues to chop sideways near its recent low price prints. The market is very much sideways as we bobble between discussions of weak global demand and concerns around future milk supply. We watch for a breakout either direction, but remind buy side hedgers that this may be a good time to consider any additional coverage should that be an objective. The chart below is a July Daily Chart to illustrate the sideways nature of current market action.

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