Cheese Continues Slide Thursday, Nearby Futures Fall Day 5
http://www.cmegroup.com/daily_bulletin/Section04_Agricultural_Soft_AltInvestment_Futures_2010238.pdf
12/9  Class III Futures:   Volume:  1,826  Open Interest (OI) Change:  +847   Total OI:  29,380
12/9  Class III Options:  Est. Put Volume:  441  Total OI:  22,101  Est. Call Volume:  389  Total OI:  21,234
12/9  Spot Markets:   Block Cheese $1.4150 (DOWN 3, 3 Trades), Barrel Cheese $1.3775 (DOWN 2 ½, 6 Trades), Butter $1.6100 (UNCH), NFDM: A $1.23 (UP 1/2), X $1.2250 (UNCH)
12/9  Other Dairy Futures Volume:   Butter:  116  Dry Whey:  115   NFDM:  48  Class IV:  20   Cheese: 148  International SMP:  0

12/9 Individual Class III Futures Prices, Change, Volume & Open Interest
Dec         $13.78                DOWN 6               Vol:   77               OI Change:      UP 8
Jan 11      $13.08               DOWN 12              Vol:   556             OI Change:     UP 135
Feb 11     $13.16                 DOWN 3              Vol:   482             OI Change:     UP 249
Mar 11    $13.62                 UP 5                      Vol:   122              OI Change:     UP 47
Apr 11     $14.02                 UP 9                      Vol:   103             OI Change:     UP 66
Jan-June 2011 Avg:     $13.78             UP $0.02/cwt
July-Dec 2011 Avg:      $15.33             UP $0.02/cwt
Jan-Dec 2011 Avg:       $14.56              UP $0.03/cwt

CME spot block and barrel cheese prices fell again yesterday as barrels dropped to its lowest level since Nov 16.  Jan Class III futures saw the biggest decline at 12 cents and Feb tagged along at three cents lower, but the remaining futures months posted gains.   Futures traders continue to widen the spread between Jan-Feb and the rest of the forward curve, signaling higher prices down the road.  As for today, we expect consolidation could lead to a end of the week  short covering rally in the nearby contracts.

Class III open interest was up 847 contracts yesterday and up nearly 2700 contracts for the week thus far, an impressive tally.  Even cheese futures have seen strong volume and open interest gains this week.  Hedgers are sinking their teeth into 2011 as buyers find value in the 1^st half of the year vs. the price of other food commodities and sellers try and find or protect profit where they can.    Look for a slightly firm open this morning to fall in line with light overnight trade.

While spot butter prices have remained unchanged all week, futures traders continue to aggressively buy in 2011.   With strong volume in the first half of the year and aggressive bidding throughout the second half of the year, futures settle ½ to three cents higher to put the 2011 futures average at 1.6770.

The announcement of drought in New Zealand has brought with it a positive knee jerk reaction to futures prices in butter, NFDM and Class IV milk on relatively decent volume.   NFDM futures finished ½ to 2 ½ cents higher throughout 2011 and Class IV futures saw 5-16 cent gains Dec-June.

As quickly as the New Zealand government announced that portions of the North Island were under moderate drought-like conditions, Fonterra tried to soften the blow and keep milk flowing by announcing a $0.30/kg increase in payouts for the 2010/11 season.   Fonterra Chairman Sir Henry van der Heyden said the decision to raise the forecast milk price reflected the continuation of high international dairy prices further into the season.    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10693344

CME spot NFDM prices saw its first price change since Oct 26 with Grade A nudging a ½ penny higher to $1.23 on a lone bid.   Talk about a flat market!   Prior to that ½ penny price adjustment on Oct 26, Grade A NFDM has enjoyed a steady run at $1.23 between Sep 2 and Oct 25.   For as much volatility that NFDM has shown over the past few years, 2010 has turned out to be fairly stable.

USDA released weekly Dairy Cow Slaughter figures yesterday that has shown year over year increases for the past 11 weeks.   For the week ending Nov 27, 45,600 cows were culled, up 12.6% from the previous year.   Year to date, slaughter has clawed back to being just 1.9% lower for the year.   Digging a bit deeper into the report, Region 5 (including WI, OH, IN, IL, WI & MN) has seen fairly expansive growth on slaughter this year, up 18% in the 3rd quarter and up 10% year to date vs. 2009.

The USDA monthly Crop Production report arrived this morning virtually unchanged from last month.  Corn ending stocks, which were expected to be trimmed again down to about 800 million bushels, arrived slightly higher than last month at 832 million bushels.  Soybean carryout was dropped to 165 million bushels from a very tight 185 last month.  Ultimately, we expect that this report has been well priced into the markets over the past two week rally.  Take a look at the attached for more details.

Some of the worries about a dry weather pattern in Argentina are relieved with forecasts for ½ to 1 1/2 inch rains in northern areas there.  Traders generally view a favorable moisture situation in Brazil currently.  The market remains somewhat jittery about the level of ethanol subsidy the industry will have next year.  Most sources suggest that ethanol subsidies would be part of the tax deal although it’s still uncertain.

Dollar bulls are winning this morning.

Good day,

Dave Kurzawski & Eric Meyer
Downes-O'Neill, a division of FCStone
Phone:  312-456-3611
Fax: 312-588-0784  (Note New Fax #)
Cell:  312-953-3078
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