CME Cash Market Summary
Daily CME spot dairy market price summary
Dairy Team - Chicago
- Dairy
Early Morning Update - August 20, 2024
By: Dairy Team - Chicago, Dairy Chicago
Class III and Cheese futures pushed higher to kick off the week with the trade focused on a full re-test of contract highs established just last Friday. A steady spot market helped encourage the strength as the current spot equivalent lines up more with a mid-$22.00 price (rather than a low $22.00 where nearby futures started the week). But the key takeaway to the spot call yesterday had less to do with the unchanged price action and more to do with the lack of bids. Not a single – even low ball – bid yesterday. There were a few offers above the market, but neither side kept the spot call open and it closed early in the session.
Perhaps the price is just right. Our take is that the supply/demand picture hasn’t changed dramatically but that buyers may be showing some signs of waning interest here. It’s tough to make that claim after just one day, but if history is our guide markets tend to zig and zag. Given the swift spot gains, buyers would have incentive to step back, re-group and – should they still want or need spot loads – see if they can’t get some lower prices for their next purchases. We think that dynamic may unfold here and usher in either a period of sideways consolidation (which appears to be underway) or a more meaningful downward correction in a bull market.
Overall nearby Class III and Cheese futures remain technically ‘bullish’ and poised for more upside, but yesterday’s Class III futures bump arrived on falling open interest. Rising prices and falling open interest (and falling volume 1,852 contracts vs. nearly 4,000 during Friday’s rally) is a weak rally. Cheese futures saw solid volume AND a good jump in open interest (590 volume and OI up by 286). While that suggests more underpinning and new support to Cheese futures, it’s worth noting that Cheese futures open interest overall sits at 13,429 today vs. 19,842 this time last year – a 33.3% decline. Class III futures open interest is 21,391 vs. 21,793 this time last year – just 1.8% less that this time last year.
We’ll dig into the options for tomorrow’s report, but on the surface we’d suggest that cheese end-users – who seem to migrate towards use of Cheese futures and options – have less coverage this year and, because of that, may be continually seeking opportunities to change that.
The USDA will release the July Milk Production report on Wednesday afternoon. We expect headline milk production to be down 0.5% from last year, which would be an improvement from the -1.0% that we saw in May and June. To be fair, production came in lower than forecast for both May and June so maybe the July forecast is too high at -0.5%, but the YoY comparisons get much easier from July onward (July is circled in the graph below). There is a strong seasonal tendency for the herd to decline between June and July, so we have it dropping 1,000 head from June, but that would mean the herd would only be down 0.4% from last year compared to the -0.7% that it was down in June. Production per cow is expected to stay on the weak side, down 0.2% from last year.
With all that said, the components in the milk remained strong in July. So even with headline milk production forecast down 0.5%, that would still leave component adjusted production up 1.3%.
CME butter continues to make new 2024 highs this week after rising 3.5 cents on Friday and a ½ cent yesterday. Yesterday’s spot volume seemed more normal with only 6 trades (compared to 75 combined on Thursday/Friday). 4 offers were left unfilled and no bids were shown at the spot close. That likely kept futures at bay as they finished mixed on good volume (211 trades with open interest down 2 contracts). Given how spot session closed we’ll see if buyers choose to take a step back today.
Spot nonfat continued last weeks momentum and has made a new 2024 high as prices rose 1 cent to $1.265 on 3 trades. Volume increased slightly from Friday with 188 contracts trading as open interest rose by half. Prices rose slightly on the higher spot trade as futures through 2024 remain flat or in line with spot prices. Tighter US fundamentals, a short term need for product recently in Mexico, and stronger powders prices in NZ through August has supported US nonfat. With GDT underway this morning, that looks like it will continue with WMP looking stronger – analysis on that to come.
- Dairy
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CME Cash Market Summary
Daily CME spot dairy market price summary
Dairy Team - Chicago
- Dairy
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