Class III, Cheese and Dry Whey futures all pushed higher Tuesday on what appears to be new buying interest. Spot cheese continued to firm pushing higher for most of the 10-minute session without trading. It was only near the end of the trade that sellers plunked bids resulting in 6 block and 5 barrel trades before the close. Fresh cheese is reportedly still readily available in the country. The question we will sort out in the coming weeks given that the spot price appears to be changing direction and becoming more well-supported is: will there be a desire by end-users (both domestic and potentially for export) to become more aggressive buyers (to perhaps refill their pipelines) if fear of missing out sets in?
The late session spot selling did stunt some of the nearby Class III and Cheese strength, but only briefly. Buyers appear ready to buy any dips. At least that was the case yesterday. For now, however, the nearby Class III/Cheese contracts more broadly appear to be reverting to the 20-day moving average – an area markets like to chop around once in play.
To get a better look, the chart below is of lead Class III futures month of February 2024. The overall trend remains down. That said, despite the premium to spot and still rather bearish overall market sentiment there remains solid underpinning support for the February contract (as well as other contracts in 1H). In fact, of the 1,915 Class III contracts that traded yesterday, 1,004 changed hands in February alone.
Spot Butter also pushed higher yesterday – up 3.75 cents to $2.5675 on zero trades, 5 bids left unfilled. As we mentioned in yesterday’s report, the market remains ranged-bound between $246.000 and $267.000 for now. Butter futures erased much if not all of the prior day’s losses on 240 contracts of trade volume and open interest up by 43 contracts. There continues to be a rather steady supply of buy side interest on 2024 futures with burgeoning concerns from a still somewhat tight AA salted market to future milk and cream supply. Despite retail sales projected to have been slow in December, the butter market continues to defy expectations of more sustainable price weakness.
Speaking of price weakness, NFDM futures was the only dairy product to close mostly lower Tuesday. Even spot NFDM moved higher (up 2.5 cents to $120.500 on 5 trades. NFDM futures still has a rather healthy forward curve premium to spot and there remains to be little in the way of excitingly bullish news at the moment, which cleared the way for a lighter 111 contracts of trade volume yesterday (OI up 53). Market conditions for NFDM futures remains sideways at the moment.
The USDA will release a slew of reports on Friday at 11 AM Central including the USDA WASDE, Crop Production, Quarterly Grain Stocks, and Winter Wheat Seedings. The Reuters survey of analysts estimates 2023/24 World soybean carryout at 111.58 MMT—close to 3 MMT lower than the December WASDE report. The trade expected World corn carryout to land at 313.03 on the January WASDE—down from 315.22 on the December report.
The USDA will also release its final production estimates of the 2023 fall harvest. The trade expects the USDA to keep corn and soybean yields the same while slightly lowering acreage leading to a small expected decline in production. The average trade guess for U.S. soybean production is 4.127 billion bushels. Corn is expected to be pegged at 15.226 billion bushels for the 2023/24 marketing year.
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