Another brutal week on the spot market with blocks losing 42 1/2 cents and barrels losing 70 3/4 cents. There were 14 trades in blocks and 32 trades in barrels with buyers picking off loads at the low end of the trade each day. This caused large swings in the December futures price as it is was deeply discounted from cash until Friday which now puts the class III cash market at 16.92 and December (which starts pricing in a week) at 17.71 after dropping limit.
Spot Market Recap
The Cheese updates ran more negative then previous weeks. Northeast cheese update from USDA stated, foodservice orders decreasing because of capacity restrictions on numerous restaurants. In the Midwestern cheese update, Spot milk is readily available and buyers are waiting for the bottom before purchasing more cheese. From the West update, food service demand is lackluster with tighter restrictions on restaurants as covid-19 cases increase. These were all good indications that the $2.00+ cheese was not going to last.
It was not all doom and gloom, on the plus side the updates all stated retail demand is strong and Western update stated that the government was still purchasing large volumes of cheese which has kept inventories in check.
Whey is another bright spot in the dairy market with prices moving higher on strong export demand and domestic demand for high protein blends have tightened availability.
The NDPSR also push to new highs with barrels coming in at 2.4087 and blocks at 2.7649. Dry whey also inched higher at 0.3686 this gives us a class III price of 24.74. We will see how fast NASS follows the cash price but if it holds on for a bit we could see futures rebound dramatically.
Overall, for the last couple of weeks the market felt weak but it took some guts to sell with the deep discounts the future prices had to the spot market. With the heavy losses in spot this week December is now 80 cents above spot cheese with one week to go before it starts pricing. It is also $7.03 below NASS so we can still get some wild swings. With the high volatility it is a good time to start looking at spread trades with options over a dollar away from the market demanding more then 50 cents. I like buying the 1600 put selling the 1450 put and selling the 1900 call for around 10 cents + commission for the first half of 2021.
Commodity trading comes with risk and is not suitable to all parties; before making any trades you should talk with your commodity broker to ascertain what trades are right for you.
Crop report lent some Bullish news for Corn and soybeans as yields were lower than expected. Carry out was moved lower to 1.7 BB. Demand from China is expected but not certain. Consider buying March corn at 4.07 place a stop below key technical support (4.02) at 3.97 . target 4.50 March as a goal.