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Dairypost Letter 1/3/2011 |
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Written by Administrator
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Monday, 03 January 2011 08:01 |
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DairyPost
Monday Jan 3rd 2011
8am cst:
The Cheese battleship at the CME, albeit at a snails pace, appears to have finally completed its 180 degree turn. It took the entire second half of December and prices under $1.35 per lb to move the domestic surplus into stronger hands. As we kick off the first trading day of 2011, end users of Cheese will likely be on the phone refilling their pipelines at last weeks averages. These buyers have had the luxury of the markets coming to them during 2010, yet now find themselves contemplating locking up needs at the low end of a wild trading range. Cold storage facilities appear to be stocked with Cheese as we start the first quarter of 2011 yet a good portion of that inventory is either gone or committed. With reports of strong domestic cheese usage during December 2010 and expectations of strong usage this month, along-side the product that is under commitment to be exported, we should find ourselves in a much tighter market during the second quarter of 2011. Trouble is the Dairy traders tend to get ahead of themselves. If we are projecting tighter stocks in 90 days there is usually a push to own it today. That is what we are currently seeing in the Cheese futures pit, which on average is trading cheese in the first quarter a dime above where the CME spot market finished last week.
The best barometer of how tight the Dairy market is at any given moment, is the price of domestic NFDM. When powder prices are low, it acts as a subsidy for overproducing cheese plants. When powder prices are more stable, all Dairy buyers have to do a much better job procuring product as well as processors have much less leverage negotiating milk contracts. With that said, NFDM was crushed the last week of December. Prices fell near 7% on both the Californian and Federal markets. Conclusion? The Dairy market is on shaky ground. No sane person disputes that. But don't throw the towel in so soon. It is true that Butter and NFDM production has ramped up over the last month as the cream multiple nose-dived, yet the powder market being dumped likely had something to do with Land o Lakes' departure as a member of Dairy America. Perhaps the processors together did not want to deeply discount close to 30 million pounds of product, but in order to square up the divorce settlement, overhanging inventories had to be cleared. For those that think the NFDM will stay flat or only get cheaper, take a good look at the February 2011 NFDM powder price at the CME. It currently is bid at $1.25 per lb, a full dime to 12 cents above both the latest CWAP and NASS settlement. If the market moves back up to $1.25, the 28,258,675 pounds of powder sold last week will be worth 3.3 million dollars more, in just 30 days.
Preparations for the 15 day Chinese New Years celebration will be picking up speed over the coming weeks. The Chinese new year, marking the year of the Rabbit, kicks off February 3rd.
The new call in number for the Rko2 spot market conference call is 1-858-400-8355, the password is still 33139#. For those new to the service, the call starts at 10:40am cst and goes until CME spot butter wraps up around 11.05am cst. Your voice will be automatically muted.
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