CME Cash Market Summary
Daily CME spot dairy market price summary
Dairy Team - Chicago
- Dairy
Early Morning Update - December 19, 2024
By: Dairy Team - Chicago, Dairy Chicago
Class III and Cheese fell Wednesday as the spot call came and went leaving spot prices unchanged on the day. Dry Whey futures also continued to tick lower – and on good volume and increasing open interest (more on that later). Class III and Cheese futures volumes surged with over 2,700 Class III and over 1,100 Cheese futures changing hands in as prices moved lower. Open interest increased overall for Class III (+233 lots) but fell 59 contracts in Cheese futures, which sends mixed market signals. Both contacts were running a good price equivalent premium to the spot market – so take away active bidding for a day and futures tend to weaken. But the fact that the lead month for both contracts saw a decline in Open Interest – along with Cheese futures declining OI overall – suggests long-liquidation was the key theme (especially up front in January where open interest declined again for both contracts).
Why does that matter? Contrary to surface level rational thought, weaker futures prices on declining open interest tends to be bullish market action. It’s a momentary decline in prices due principally to profit-taking rather than a concerted effort by market participants to “get short”. Nothing in markets – or in life – is 100% certain, but we’d call yesterday’s activity a continued consolidation of the recent neck-breaking rally in which traders re-position themselves ahead of today’s Milk Production report.
We see two main drivers behind milk production right now. The first big driver is bird flu in California. The USDA reported milk production in California was down 3.8% from last year in October. We’re hearing production in California got worse in November, down anywhere from 7 to 10%. Our model is only plugging in -5%, but on-the-ground contacts were right last month so I’m not going to be real surprised if the USDA says California production is down 7% for November.
The second big driver is preplanned expansions and new farms coming online to fill the new cheese plants. In the 3 months from July through October U.S. farmers added 46,000 dairy cows to the milking herd, that is a 0.5% increase in cows in just 3 months. They did this despite record tight heifers, record high replacement cow prices, the cost of building new barns, high interest rates, etc. etc. etc. How many more of these big expansions have been planned over the next year? In rough numbers it would take an additional 350,000 cows to fill the new processing capacity (when the capacity is running at 100%). So there could be another 50,000 or 100,000 or 150,000 more cows that could come into this herd in the next year. How many of those got added in November? We don’t know, but if the USDA said the herd grew another 20,000 head in November that would help to cushion the weakness in California.
For now it appears to us there are greater odds of November coming in lower than forecast than it coming in higher than forecast, but there is more risk that Q1/Q2 come in higher than forecast than lower than forecast assuming we continue to see (even mild) herd expansion in the November milk production report.
Dry Whey futures continued to move lower yesterday despite a re-appearance of buy side interest during the spot call. Spot whey closed up 0.50 to 75 cents. All told, Dry Whey futures volume registered at 127 contracts with Open Interest up 103 contracts, so this is some new selling interest. While the US Dry Whey market remains well-supported, conversations this week have us asking: “hey, how often and how much whey do we import from Europe?” The answer is not much (and most of the imported whey comes from Canada and their industry about 1/10th the size of US dairy). But with mid-to-low 40 cent EU Dry Whey prices for 1H 2025 currently, mid-70 cent whey here in the states is raising questions about sustainability. EU prices could firm up here more materially too but in the absence of that, we expect continued headwinds for whey futures for now.
Class IV, Butter and NFDM futures all traded higher Wednesday. Nearby butter futures look to be putting in some sort of double bottom (Q1 2025 chart below), but with plenty of cream available and waning seasonal demand the $2.45-$2.55 butter level we’ve mentioned over the last few weeks remains intact. Futures trade volume registered at 205 contracts and open interest rose 14 contracts as this choppy consolidation around current levels was the theme yesterday.
Q1 2025 Butter Daily Chart
NFDM futures bounced Wednesday following the heavy volume, GDT Auction inspired sell off Tuesday. Over 700 NFDM futures traded as futures prices fell Tuesday, but only 315 on the recovery bounce yesterday. Spot fell 0.75 cent to 137.250 yesterday on 6 trades (8 bids, 4 offers left on the board), giving the impression of weakness. From our vantage point, the market price of spot NFDM is still distributing sideways for now and mid-$1.30’s in 2025 futures appears to be garnering some support from buyers despite continued weaker global prices.
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CME Cash Market Summary
Daily CME spot dairy market price summary
Dairy Team - Chicago
- Dairy
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