CME Cash Market Summary
Daily CME spot dairy market price summary
Dairy Team - Chicago
- Dairy
Early Morning Update - October 19, 2023
By: Dairy Team - Chicago, Dairy Chicago
Class III, Cheese, Block and Dry Whey have expanded trading limits today.
Class III and Cheese futures continued Tuesday’s rally with gusto Wednesday as a good mix of short covering and commercial buying (2024) continue to bolster the forward curve. Over 4,200 Class III contracts changed hands yesterday with 41% of the daily volume transacting in the November Class III contract alone. As we wrote yesterday: “If you’re a speculator short futures, your unrealized profit hasn’t been going up in days. At some point they cut and run.” They cut and ran yesterday. Open interest in the November contract dropped by 650 contracts (down 91 in November Cheese).
Sometimes a tight spot market leads the way higher. This is not the case for Cheese today. Futures are leading this rally. The good two-side market for cheese in the mid-$1.60s for barrels and low $1.70’s for block caught a more aggressive bid yesterday pushing the average up 4.75 cents to $1.7212 – still a far cry from the November close of $1.8760. As futures rally, spot/futures arbitrage opportunities re-emerge, which is likely one cause for the more aggressive bidding. Let’s not mince words, fresh cheese is still available and coming to the exchange here. But it’s orderly – as it has been for the last few weeks - no one seems to have a ‘problem’ they need to get out of on the sell side.
Big quick futures moves like this – especially ones driven by short-covering as in the November contract – are like houses built on sand: vulnerable to collapse. We’re not saying back down to $17.00 for November, but we are saying the environment is ripe for a swift downdraft as calmer heads may prevail today. We shall see. On the other side of the coin, the dry whey market continues to be very well supported and even if futures there take a breather, we believe it is unlikely to move materially lower at this point. Looking into next year, January to June Class III is up about 50 cents in the last week closing at $18.79 yesterday as longer-term hedge buyers continue to set up budgets next year. The full year finished at $18.83 – and producers are starting to pay attention.
Butter and NFDM futures slumped yesterday as new selling seems – especially in 2024 – is a key feature this week. Spot butter gained another 0.75/lb. to close at $3.4175 yesterday, but marching orders to sell 2024 around $2.50/lb. continue to be in effect for what we believe is long-term inventory hedgers. Meanwhile, end-users are interested in laying off at least some portion of their budget risk around the $2.50 mark, which continues to prompt a good two-sided trade for butter futures this week. NFDM futures, on the other hand, looks to be more of less consolidating recent gains the past few days and we expect that to continue with a mixed trade today.
The USDA will be releasing the September Milk Production report this afternoon. Our forecast is total U.S. production will be flat against last year, which is an improvement from the preliminary -0.2% reported for August. Given how weak the August cheese, butter, powder, etc. production was, there is a strong chance that the August production data gets revised lower with the adjustment likely coming from a smaller dairy herd for the month.
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CME Cash Market Summary
Daily CME spot dairy market price summary
Dairy Team - Chicago
- Dairy
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