The recent rally now has now accounted for roughly a $1.05/cwt. gain in the June contract since April 15.
While open interest finally increased significantly on the price rally, it will be curious to see what that means at week’s end. Yes, demand is good. But there is hardly a shortage of milk – maybe not a wall of milk – but hardly a shortage. And while we do not want to sound like a broken record, the international market situation is far from bullish.
California seems to be the most pertinent factor in the bullish argument. Milk per cow has decreased now for 3 months in a row. The situation is obviously more dire as time goes on. But while most of the focus has been in California, two other states, New Mexico and Oregon, have also seen declines in Q1 2015 milk production.
China might not be buying much powder relative to last year’s demand, but they are buying a lot of cheese in comparison, and the European Union is making less cheese to produce more powder based on the Russia situation.
The propensity for upwards swings seems to be greater each day we push through flush. That does not make us bullish in the near term, as we continue to expect some choppiness. However, the path of least resistance seems to be shifting to the upside. This writer thinks the rally fizzle is around the corner.
USDA’s Milk Production report released yesterday was bullish versus pre-report expectations. However, much of the recent price action may have already accounted for such a number. U.S. milk cows saw a counter-seasonal move, down 5,000 vs. last month – the first month-to-month decline since November 2013 – but up 78,000 vs. last year. Milk per cow came in at the highest level on record for March, up 8 lbs. year over year.
Butter futures firm tone continues, gaining as much as 1.625¢ in May. The 2H 2015 butter pack is trading near $1.9208/lb. Exports continue to be sluggish, but concerns over inventory seem to be keeping the market positioned for a move north of $2.00/lb. We remain significantly disconnected from international fat markets.
What impact will the Blue Bell Creamery recall have on ice cream and fat demand? We don’t hear much talk about that, but I think we should hear more.
Class IV was silent yesterday. NFDM trading was mixed, with futures trading anywhere from +1.0¢ to -0.75¢.
We look for a higher opening for Class III, Cheese and Dry Whey.
We look for NFDM to open higher, Butter firm, and Class IV quiet.
April 21 spot session results:
Block cheese: $1.6075 (up 3.25¢)
Barrel cheese: $1.6250 (unchanged)
Grade A NFDM: 92.50¢ (unchanged)
Butter: $1.8300 (unchanged)
Both July Corn and Beans saw declines yesterday as traders focus on bird flu within the U.S. Poultry accounts for 28% of U.S. corn use. While traders debate the impact, the initial reaction caused some slight declines.
Corn planting, at 9% complete, is slightly ahead this time last year. Traders are watching the Brazil trucker talks with government officials.
Traders are also debating various U.S. carryout projections, with some analysts predicting ending stocks below 310 million bushels, far below the 370 million bushels estimated by USDA.
We look for a slightly lower opening to the grain complex.
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