CME Cash Market Summary
Daily CME spot dairy market price summary
Dairy Team - Chicago
- Dairy
Early Morning Update - December 21, 2023
By: Dairy Team - Chicago, Dairy Chicago
The USDA will release the November Cold Storage report on Friday just as you’re spiking your eggnog and wrapping those last minute gifts. The market won’t get a change to trade the number until Christmas day at 5PM, when dairy markets re-open. We expect stocks are a little heavier with cheese going from +1.2% YoY in October to 1.5% in November, mostly driven by American varieties. We’re also assuming continued weak exports and a slowdown in domestic demand allowed butter stocks to shift from -0.6% in October to +3.9% in November.
Meanwhile, a good two side trade has developed for spot cheese around $1.40 this week. So far this week, 34 barrel loads have traded as the market has found a clearing level for now. Class III and Cheese futures have also taken a rather sideways approach to the trade this week closing mixed again yesterday on or near their recent lows. Market participants are confused as to why futures haven’t continued to fall in response to this week’s spot cheese weakness. There’s no clear answer except to say that the futures market considers more than spot prices AND the market is willing to leave risk premium in the forward curve as the carry in the market expands.
Futures and options trade volume continued to be rather robust on Wednesday marking the second day of minimal price action juxtaposed against strong volume. Another interesting point is that Open Interest in Class III futures and options dropped substantially yesterday (futures down 1,368 options down 6,409). While some of this was presumably actual liquidation of positions, it appears as though a market participant or several market participants moved positions off exchange (into OTC accounts). It would be pure speculation as to the reasons why, but its noteworthy since presumably such move removes some potential liquidity on these exchange traded products.
The same dynamic took place in Class IV, butter and NFDM - but to a lesser extent than Class III. Class IV trading volume registered at 52 contracts yesterday but Open Interest declined by 215 cars. Over 1,100 Class IV options changed hands yesterday, which was a strong showing for options volume but here too OI dropped by a multiple: 4,289. It should be noted that the vast majority of the options removed from exchange open markets in both Class III and IV is more heavily weighted on Put options – not calls.
After starting the week higher on spot, spot butter remained unchanged yesterday with no trades. That put some pressure on nearby futures but deferred futures were able to finish higher. Q1 futures have rebounded similarly to prior times when it tried to test the $2.45 support level as seen below. So far, end users are eager to add 2024 coverage when futures break $2.50. Although we are seeing butter stocks rise, which happens seasonally, we’ll need to continue to see weaker demand to break $2.40 on spot and so far a tighter milk production story isn’t helping either.
Both blocks and barrels were lower than forecast. That weak block volume last week was not revised higher. Butter also came in weaker than forecast while the powders were close to expected. I have Dec Class III at $16.00 and Class IV at $19.28.
- Dairy
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CME Cash Market Summary
Daily CME spot dairy market price summary
Dairy Team - Chicago
- Dairy
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