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Early Morning Update - July 15, 2024

By: Dairy Team - Chicago, Dairy Chicago

 

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Class IV, NFDM and Butter futures markets have expanded trading limits today.

Despite continual talk of hot weather and a few more cases of Avian Flu (as reported by the USDA) last week, the dairy complex continued to work lower Friday. Class III and Cheese futures sold off on moderate volume as spot sellers dialed up their aggression Friday. Barrel cheese closed down 4 cents to $1.8500 – the lowest price since the second week of May – on 8 trades. Block cheese also succumbed to selling pressure – down 6.5 cents to $1.8900 on 4 trades. Nearby Class III and Cheese futures sold off and have now given up most of their July gains but remain above the low price print in July (See August Class III Daily Chart below).

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From a futures market perspective, these contracts are experiencing some good back and forth here in July and remain directionally sideways. That can change with more spot weakness of  course. While we suspect that slower export sales in June (not what will be reported for June but sales made in June) and perhaps a pause in domestic buy side activity may have a hand in this burst of additional available supply of fresh cheddar on offer during the CME spot call, we’re also believe the risk of strong cheese prices still exists. Besides the underwhelming overall milk production situation this year, present pockets of fresh milk tightness, and general lack of ability by producers to respond quickly to high priced milk markets, we’ve just made less cheddar so far this year. Cheddar production this year is down 8.2% after adjusting for leap year and that matters when it comes to persistent availability of fresh cheese to come to market.

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Spot Butter opened and closed unchanged with no trades, which seemed to send butter market participants off to the weekend early. Just 15 butter futures contracts changed hands on Friday. Open interest was up 13, but we’re not sure that even matters. The market is stable around current levels and although spot selling interest appeared to increase last week, we await any judgement on a market that seems willing to continue its sideways chop for now.

NFDM is another story. Selling pressure and trading volume last week picked up the pace Wednesday-Friday and did so primarily out in 2025. Since the first week of July, the 2025 NFDM pack has lost just over 6 cents from $135.500 to a new 2025 pack low of $129.100 on Friday. Selling pressure could be presumed to be “hedge” in nature given the typical lack of speculative activity that far out on the forward curve. Nevertheless, a willingness to whittle away forward curve premium despite tight milk and tight powder inventories sends a somewhat bearish shiver down the spines of would be NFDM bulls. That said, end-users are beginning to look at the recent weakness as a benefit to put together their 2025 hedging needs. Problem with that is that we’re here in mid-July and some of those buyers are on vacation and not setting budgets now anyway, so action may be limited.

The USDA surprised the trade on Friday by offsetting the entire 240 million bushel 2024 U.S. corn production increase, and then some; overall demand was up 150 mbu in the old-crop and 100 mbu in the new-crop for a +250 mbu move overall. Total 2024/25 demand of 14.905 bln bu would not quite be a record, as five of the last eight seasons have topped 14.8 bln bu, but none have yet touched the 15 bln bu mark. Feed use around 5.8 bln in each of these two years remains off the 5.9 bln “ethanol era” high in 2019/20.

December new crop corn made a new contract low before the report Friday and then turned and closed higher then Thursday’s high price print. This is called at “key reversal” and it is bullish price action. Corn was lower overnight but technically our expectation is for new crop corn to work higher this week. We shall see. End-users seeking new crop corn coverage ought to be looking to step in now.

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