4^th Straight Day of Steady Spot Cheese Prices, Class III/Cheese Futures Continue Pressing Higher

http://www.cmegroup.com/daily_bulletin/Section04_Agricultural_Soft_AltInvestment_Futures_2010143.pdf

7/27  Class III Futures:   Volume:  910  Open Interest (OI) Change:  +137  Total OI:  28,945

7/27  Class III Options:  Est. Put Volume:  475   Total OI:  20,574   Est. Call Volume:  276  Total OI:  18,956

7/27  Spot Markets:   Block Cheese $1.6025 (UNCH),  Barrel Cheese $1.56 (UNCH),  Butter $1.80 (UNCH),  NFDM: A $1.21 (UNCH),  X $1.2250 (UNCH)

7/27  Other Dairy Futures Volume:   Butter:  61  Dry Whey:  14   NFDM: 69    Class IV:  0   Cheese:  0

7/27 Individual Cheese Futures Prices, Change, Volume & Open Interest
Jul           $1.456     UNCH                Vol:    0                   OI Change:  UNCH
Aug         $1.584      UP .003              Vol:    0                  OI Change:   UNCH
Sep         $1.626      UP .003              Vol:    0                  OI Change:   UNCH
Oct          $1.613      UP .009               Vol:    0                 OI Change:  UNCH
Nov         $1.589      UP .015              Vol:    0                   OI Change:  UNCH
Dec         $1.586      UP .012              Vol:    0                   OI Change:  UNCH

7/27 Individual Class III Futures Prices, Change, Volume & Open Interest
Jul           $13.74    UNCH               Vol:  13                    OI Change:     DOWN 3
Aug         $15.00     DOWN 1          Vol:  146                  OI Change:      DOWN 96
Sep         $15.42     UP 2                 Vol:  325                  OI Change:     UP 16
Oct          $15.20     UP 14                Vol:  100                  OI Change:     UP 37
Nov         $14.93     UP 11                Vol:  110                   OI Change:      UP 62
Dec         $14.80     UP 6                 Vol:  88                   OI Change:      UP 65
Aug-Dec 2010 Avg:  $15.07                                       UP 0.06/cwt
Jan-Dec 2011 Avg:  $14.59                                        NO CHANGE

Cheese continues to make its way to the CME spot market for the 4^th straight trading session, but Class III futures prices continued its upward track yesterday, settling 2-14 cents higher Sep-Dec 2010 on moderate volume.  Traders appear to be leaving the August contract, currently in its 2^nd week of pricing and adding long positions in the 4th quarter, which made up the majority of the open interest gains in yesterday’s trade.   In overnight trade, Class III futures traded as low as $15.05 (down 15 cents) in October on moderate volume.   Currently, Class III futures are mixed, trading six lower to six higher and we expect a mixed open today.   Spot cheese prices are going to need to continue to move higher in order to feel the bullish tone to the market; otherwise a correction is in store.

We have been noticing over the past week that more Class III futures volume than normal is trading in the afternoon session (1:10PM – 4PM CT).   While there is no difference to afternoon trading from the rest of the daily electronic trading session (the market remains open 23 straight hours a day, from 5PM-4PM CT Sunday-Thursday), trades that occur in the afternoon do NOT count in the daily price settlements.   While we have not found a justifiable rationale for this type of trading activity in Class III futures, it is worth noting that the bulk of the afternoon trading has tended to occur ABOVE the daily settlement price established at 1:10PM.

The CME spot butter market has remained steady for three straight trading sessions at $1.80.   Sellers continue to bring product to the exchange but have quickly been acquired by buyers.  CME’s weekly butterstocks continue to flame the bullish sentiment to this market – for the week ending July 24, 45.9 million lbs of butter were in CME approved warehouses, down 3.36 million lbs (down 6.8%) for the week and year to date is off 52.8% vs. 2009.   Seasonally, sharper declines begin in the Aug-Sep timeframe.   Prices will likely remain strong for at least through the remainder of the 3^rd quarter to try and ration demand through the end of the year.

In the powder markets, dry whey futures saw 1 to 2 cent declines Jan-Apr 2011 on light volume.   Cheese hedging and lack of liquidity in the dry whey markets have caused 2011 futures to be quite volatile over the past few months.   Spot whey prices have actually been fairly stable over the past two months and we expect this market to remain supported in the low to mid-30s for the time being.   NFDM futures saw slight increases on strong volume in the 2010 months.  Good two-sided trading continues in that market as buyers see value in locking in budget-friendly prices and sellers look to protect themselves if exports decline heading into Oceania’s new production season.