New Class III and Cheese futures selling resumed in earnest Tuesday with solid futures trade volumes and rising open interest. Spot block weakness (down 4.75 cents on 7 trades) was likely the driving force as US spot cheese market continues to deal with an steady stream of sell orders – despite firm global cheese prices - here in week 3 of the New Year. The price of barrel cheese actually increased closing 2.5 cents higher on 8 trades as anecdotal comments point to tighter supply of barrels particularly in the Midwest. The net result of the futures trade yesterday is a market caught in a sideways chop within a larger still-bearish market trend. That said, new contract lows for nearby futures have not been made and the back and forth activity could be evidence of the market trying to etch out a bottom. Too early to call that, but we expect more of the same sideways distribution on price today.
While Class III moved lower Tuesday, Class IV moved higher perhaps paying some attention to the firm GDT auction results. Trade volumes on butter and powder were lackluster both coming in under 100 contracts. Stable spot markets continue to stymy futures downside potential at the moment and while global price action isn’t magnificently bullish, the US trade is coming to terms with growing limited downside potential specifically on NFDM.
The GDT price index moved 2.3% higher yesterday, falling short of where futures pinned price expectations. Volume offered was down 19% and total volume purchased was down 22%, primarily from declining demand from Asia. All products moved higher in price except mozzarella, which saw a 3.3% decline. AMF was up significantly due to Chinese demand.
The WASDE report from last Friday was slightly bearish, mostly on domestic fundamentals. Corn yield was a record 177.3 bu/acre, with many states revised higher including Nebraska, Iowa, and Illinois. To eat at that yield, planted and harvested acres were revised down, along with increased estimates for feed, food, and ethanol demand. Soybeans had a similar story with yield estimates up .7 bu/acre to 50.6. Brazil production was revised down but not as much as expected. Ukraine has been able to export commodities at rates seen before the war with Russia started, and with Argentina harvest starting in March/April, Brazil’s production will need to come significantly lower for US to participate in the export market.
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