Class III and Cheese posted a new 2-month high price print early Tuesday as more short-covering drove prices higher. When markets turn like this, there’s no telling how long or how far they’ll go before calmer heads prevail. We got than answer during spot cheese yesterday when more product made it’s way for sale in Chicago.
Although block cheese continued its ascent – up 3.75 cents to close at $1.6475 on 5 trades, barrel cheese fell 2 cents as sell side interest was more aggressive. When the closing bell rang 7 loads of barrels changed hands leaving the price at $1.5300. Futures, which had been trading higher most of the morning, sold off and closed lower on good volume (2,735 Class III and 998 Cheese). Class III open interest fell by 208 contracts overall mainly driven by liquidation – likely mostly short-covering – on the nearby contracts. Cheese futures saw open interest increase by 181 contracts. Markets are leaning lower this morning and we expect more cheese to show up, but from a futures trading perspective we believe the sentiment out there today is to ‘buy the dip’.
Butter and NFDM futures got busy yesterday trading over 400 contracts in each market. Butter was lower NFDM firmed. Spot butter sat quiet for the first time since last Tuesday giving the signal that perhaps the market has adjusted enough to reconcile the light inventory levels that surprised participants last week. Spot NFDM gained a half cent to close at $123.000 – a level not seen since mid-October. NFDM futures continue to find some new buy side interest but no wholesale panic in that market today.
We have some reports for markets to digest today starting with the resolution to the first FOMC meeting of 2024. At 2pm the USDA will release the January Cattle Inventory report which will tell us how many replacement heifers will be available to come into the dairy herd this year. The report is also the most rigorous counting of bovines that is done each year which could lead to revisions in the size of the dairy cow herd. The new data could shift the story a little, but in general the expectation is weak milk production. Farmer margins did recover in Q3/Q4, but they are dropping again in Q1 as cheese prices have dropped. The heifer supply is tight and interest rates are high. The counter argument is that dairy cow slaughter is running 10% or more below year ago levels and the heifer supply has never been down more than 4.4%. If slaughter stays this weak, the herd will eventually start growing.
Our models for the NDPSR report are expecting a slight increase in cheese and butter prices and a slight decline in Nonfat and whey prices.
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