|August 19th, 2011. 7:37 am cst|
|Written by Administrator|
|Friday, 19 August 2011 06:55|
Lower GDP forecasts in the developed world have financial markets in turmoil once again. Dow futures fell as much as 525 points yesterday yet settled 364 lower. We are currently testing and breaking yesterdays lows with the dow already down another 136 points. A bounce off the bottom this morning would not surprise me but weak weekly technicals should rule the roost today. The market looks like it wants to retest last Tuesday's low of 10,401. The selloff that day was called the bottom by many economists, considering the market closed 793 points above the low that very day.
The action in September Class 3 milk futures looks eerily similar. Last Friday, September futures traded as low as $18.62 before finishing the day at $19.49 per cwt. The market flirted above $19.70 per cwt both Monday and Tuesday before crashing and burning over the last two days, to you guessed it, $18.62 per cwt. Buyers were all over the low yesterday resulting in not only the September to turnaround but also helped 4th quarter futures post a 17 cent per cwt gain. Fourth quarter futures now average $18.25 per cwt. Fourth quarter Class 4 futures average $18.32 per cwt.
We are patiently awaiting an announcement from CDFA regarding changes to the Class 4a make allowance as well as changes to prices their farmers receive for dry whey. In order for any rule changes to go in affect by September 1st, an announcement must be made shortly. Western mostly Whey prices on the west coast have risen, according the dry products summary report, to an average price of 59.25 cents per lb. The difference between that average and where California producers are locked in is 34.25 cents per lb. On the Class 3 board, that would result in an increase of $2.05 per cwt in the milk price.
Whey futures are heavily discounted in the fourth quarter at an average price of 50.84 cents per lb. The futures price should continue to strengthen, subsequently lending support to Fourth quarter Class 3 milk. The million dollar question at the moment is how low does CME cash cheese go. Blocks were down 12.5 cents yesterday without a trade. Could Cheese go as low as $1.50? Of course. Do I think it will? No. I think that buyers, both domestically and internationally have been comfortable with setting contracts between $1.75 per lb and $1.80 per lb all the way to next spring. Support will likely come to the market even sooner than that. If this $1.85 to $1.90 price holds today, it is highly probable that it will be the bottom for the month.
Domestic buyers that have the ability to purchase cheese off the prior weeks NASS average will have as long as next Friday to buy this weeks average. If we continue to fall they will surely delay that decision to the following week. It will all depend on whether or not the big boys that are holding inventory made at higher levels say enough is enough. They seemed comfortable holding it up earlier this week, even pushing the block price up on Monday. Whether that was an attempt to get out of long futures contracts or to actually buy cheese, the fact that it happened shows you that this market is very touchy. My opinion is that the amount of cheese that is taking us down here is minimal. It is on one hand enough to shave 30 cents out of the cheese price, but on the other hand, not enough to keep it here.
According to yesterday's CME spot prices and this mornings NASS Whey and NFDM price (which both posted weekly gains), we currently price Class 3 at $19.34 per cwt and Class 4 at $20.35 per cwt.
Sep Dow down 135 to 10,881
Sep Crude down $0.78 to $81.60
Sep Corn up 3.75 cents to $7.025
August Gold up $25.1 to $1844 (traded up to $1874.4 overnight)
Ronald K. O'Brien II
Rko2 Futures & Options llc
f : (888) 912-1959