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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
www.rko2.com
o: (305) 960-7890
f : (888) 912-1959

This report includes information from sources believed to be reliable and accurate as of the date of the publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of futures contract and or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.

Dairy prices in Oceania continue to soften according to yesterdays release of Global Dairy-trade. All products across all time periods were down another 0.9% from two weeks ago and have now corrected more than 24% from spring highs. The correction could be an attempt to cut the Americans producers out of their markets. Or perhaps just simply due to strong gains in product production at the same time that buyers have seemingly pulled in the reigns. When looking at the currency markets, the Aussie, Kiwi and the Euro vs the US$, have been volatile but for the most part have traded sideways since March. It is my opinion that the demand is there and prices would be higher if it wasn’t for the fact that dairy buyers are savvy traders that use the perishability of milk products and the weak cash position of coops to their advantage. Sellers abroad know this and want to keep their customers.

Producers produce every day, manufacturer’s manufacture every day, yet buyers can take the summer off from the tough decisions regarding long term contracting. It is always the long term, “I will take everything you got at this price” mentality, that creates bottoms in every market. It is my belief that we are still not there globally and most certainly not there in the United States. We are getting close in Oceania, as seen in the essentially flat auction yesterday, but If domestic markets are reluctant to even slightly pull back, we will lose out on a good deal of sales this winter to our foreign competitors. Considering only 5% of total cheese produced during the first 1/2 of this year went abroad, and the fact we normally don’t rely on exports in the dairy market, the show will go on with or without them.

Oceania has taken the steps to lower their product prices with increased offerings yet our Cheese and Butter markets seem to be at the moment artificially supported. I am not a proponent of a bear market for dairy but price volatility in cash markets is necessary. I personally need to see a major correction before being a proponent of calling even higher prices. The longer we sit and spin at todays levels the bigger the blow back is likely going to be to the downside. Regardless, excess cheese and butter are finding their way to the CME cash markets as they always have in years past. Futures traders are calling for a 30 cent correction in cheese prices and a 25 cent correction in butter prices by december. We will need it to spur contracting of products. It is my opinion that it needs to happen sooner than later yet cash traders are defending prices today. Rip the band-aid off and lets these markets resume their upward path. If not these futures markets have a lot of catching up to do.

Not everyone thinks this milk market needs to pull back considering the US$ remains in deep-shit and milk per cow gains have flat-lined. New crop Corn is also making new highs and hay is hard to come by. I do not envy the decisions dairy producers will have to make if deferred futures market prices are realized. But unlike 2009, atleast they will have a decision to make. Kill or be killed. Salvage prices of animals are nearing record highs if not their already. Again, I am not saying they are losing money at todays prices, but $17 milk and todays feed metrics will not work.

Sep Corn up 1 cent to $7.15
Sep Crude up $1.50 to $88.15
Sep Class 3 milk down 9 cents to $19.55
Sep Dow up 37 11,424

California Weighted Average Powder price for week ending August 12th averaged $1.6005 per lb on 13,236,092 pounds sold. This price is up 3.15 cents vs week prior and alongside CME Butter at $2.09 per lb, prices California Class 4a milk at $20.44 per cwt.

–
Ronald K. O’Brien II
Rko2 Futures & Options llc
www.rko2.com
o: (305) 960-7890
f : (888) 912-1959

This report includes information from sources believed to be reliable and accurate as of the date of the publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of futures contract and or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.

September Dow futures responded well to yesterdays rumor that the world is not going to end this week. Sep Dow finished the day up 153 points at 11,403. The contract is now more than 1000 points above the August 9th swing low, but still 1,300 points below the July 23rd high. It will likely run into heavy resistance near the 50% retracement level. Since the US debt market lost its sacred cow status, world financial markets have been struggling to price in the additional risk. FYI, Risk-less assets do not exist. They never have and they never will. You can park trillions in Treasury markets but the chance of losing your money has now increased. You can purchase default swaps on corporations and sovereigns, but they are only as liquid as the institution that signed the note. You can not write away risk. You can however magnify it, as we all know to well. This brings me to the point that demand for tangible, liquid assets such as commodities will increase. Not necessarily the demand in the form of consumption but demand in the form of investors willing to ride out some of your losses in order for a seat on the bandwagon once good times arrive. Producers should be all for the additional investment. Just prepare for storms that will follow the money.

September Class 3 milk, under pressure from indecisive cash cheese markets, continues to flop around with a $19 handle. Cash markets still price the contract above $21, but longs surely don’t want to be in the way of the biggest cash trader, who now all of a sudden is bringing product to town. Shorts would come out and play, but considering the contract is discounted nearly $2 per cwt, they really don’t see the value of betting further downside. With that said $20 looks a whole lot better than the $18.62 print last Friday morning. Watch for action in the fourth quarter 2011 and first quarter 2012 packs. If size starts to show on the buy-side then demand is likely strong at the plant level. So far the action has been muted leading me to believe this recent bump in futures and cash prices are short term corrections. For those that are stressing about all out collapsing milk markets, watch the December 2011 Live Cattle and December 2011 Corn futures contract. Both are telling me that milk prices should find support once these cash cheese sellers clear their inventory. It takes money to make milk. Take away the money this time and these dairy farms will turn to feedlots faster than an auctioneer can sell them.

January thru June exports of Cheese at 119,468 tons accounted for 5% of its production
(more than 1/2 of the cheese exported in June went to S.Korea)
January thru June exports of Powder at 218,158 tons accounted for 48% of its production
January thru June exports of Butter at 39,854 tons accounted for 9% of its production.

Sep Dow down 113 to 11,290
Sep Crude down $1.39 to $86.49
Sep Corn down 5.75 to $7.015
Sep Class 3 up 7 to $19.70

–
Ronald K. O’Brien II
Rko2 Futures & Options llc
www.rko2.com
o: (305) 960-7890
f : (888) 912-1959

This report includes information from sources believed to be reliable and accurate as of the date of the publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of futures contract and or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.

When it rains, it pours. Milk producers across the country woke up yesterday to the news that the USDA cut the size of their new Corn crop by almost 600 million bushels from month prior. The short covering and ensuing buying would send the corn market “limit up” out the gate erasing the $6 handle for both the old and new crop futures contracts. Futures closed a nickel off the highs of the day, but considering December Corn is now $1.40 per bushel above June lows, a much need long term break in feed prices doesnt look to be in the cards. If that wasn’t hard enough to digest, milk producers in just a few quick minutes, saw their hopes and dreams of a third straight month of Class 3 above $21 vanish as the CME cash cheese market finally folded under the pressure.

The return of the 800lb gorilla back to the Cash cheese market had dairy traders in a “shoot first, ask questions later” mode, taking the entire dairy complex substantially lower, despite the already discounted paper market. September Class 3 would struggle to gain traction throughout the session, eventually falling 75 cents per cwt, a.k.a “limit down” to $19.12 per cwt on the close. October 2011 and April 2012 Butter futures as well as the entire fourth quarter 2011 NFDM futures also would settle down the maximum allowable daily limit (5 cents for butter and 2.5 cents for NFDM). More selling is being witnessed across the dairy complex this morning with October Class 4 milk futures down 41 cents to $18.30 per cwt. Cheese futures are down as much as 1.5 cents in the September and November 2011 contracts, and September Class 3 milk is down another 50 cents.

A majority of traders believe that it will be a straight line lower from here on out, almost a rerun of how the market traded at the end of 2008. I couldn’t disagree more with that perspective. The deferred 2009 futures contracts back during 2008, for the most part, started at $16 per cwt, traded up to over $20 per cwt and then finally collapsed, trading under $10 per cwt for some spring / summer contracts. Fast forward 3 years and we are looking at the 2012 contracts barely budging when the cash markets go up and barely budging when the cash markets go down. When looking at Class 3 open interest as well as spot feed prices, I can tell that Commercial dairy buyers are unhedged in 2012 and that producers are in no position to lock up $300 per ton feed and get $17 milk for it. I understand profits are not guaranteed and locking in a break-even price is better than losing money but there are major differences in todays market, compared to the one witnessed 3 years ago.

We are already seeing milk per cow plateau due to changes in rations. This is creating milk deficits in some of the most concentrated dairy producing regions of the country. Deficits in the midwest will continue, slowing down cheese production over the medium / longer term. Also, why continue to run $7 per bushel corn through an animal when you can just sell the feed to the Ethanol plant? Especially when the salvage value of each of those dairy cows continues to climb. Now i’m not saying that producers are losing money at todays prices, I am just making the case that producers will respond if dairy prices crash. In all of the madness yesterday, Dairy producers might have missed the news that despite the limit up move in the corn market, August Cattle futures also traded up the daily limit of $3 per cwt before closing $2.15 higher to $116.45 per cwt. Cattle is normally punished on days where the corn market rallies hard. Cash cattle markets are worlds apart from 2009. Not a single Live Cattle futures contract during 2009 traded $90 per cwt or higher. December Cattle last trade is $122.40 per cwt and climbing. In fact some of the biggest managed funds in the world are licking their chops even at these prices.

All in all, Im not saying we cant go down in the cash dairy market but I think the medium term response by the producer sector will be more hamburgers and less milk, resulting in a return to 2011 price highs. Some might tell you different, but dairy producers don’t need their processing sector counterpart to give the green light to implement growth management plans. Simple economics, has and always will, trump politics.

Ronald K. O’Brien II
RKO2 Futures & Options LLC
Office:(305)960-7890
Cell:(312)446-1565
www.rko2.com

*This report includes information from sources believed to be reliable and accurate as of the date of the publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of futures contract and or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.

“Im up, they see me, I’m down.” It is what a drill instructor forces all young marines to repeat as they practice running down firing ranges. The saying can also be easily applied to how the Dow Jones Industrial index has traded over the past week. Since the start of the month, we have now witnessed 4 triple digit losses. Yesterday collapse completely erased the 400+ gain on turnaround tuesday, selling off 520 points on the close. In overnight trade the Dow was off another 150 + points, with last trade more than 2,200 points lower than just 3 weeks ago. In overnight trade, Gold traded another $32 higher, to a fresh record high price of $1813.50 per ounce. JPMorgan came out earlier in the week citing the metal would likely trade up to $2500 per ounce by the end of the year. Thats what I call getting ahead of the problem. It sounds similar to some of the Crude Oil forecasts when we were trading near $150 barrel during the summer of 2008. Forecasts of $300+ per barrel were made by many firms and we all know how that turned out. In my opinion, we might see $2500 per ounce by the end of the year but it will likely be after an all out long liquidation down to $1000 per ounce.

September Class 3 milk futures didn’t need help from the cash markets yesterday to fall 46 cents per cwt lower midday. The absence of both buyers and sellers in both blocks and barrels did little to stop the slide, in fact it only added to the bear market pessimism. We might be still pricing Class 3 milk above $21 per cwt but with offers as low as $1.9720 in the September 2011 cheese futures market, $2 cheese seems already in the rearview mirror. International traders are focused on the Southern Hemisphere flush forecasts. Oceania is expecting a 3-5% increase above last years production levels for both milk and cream. This does not necessarily mean its a straight line down for domestic cash markets but the pressure is definitely on domestic sellers to discount product or lose supply contracts. Considering more than 85% of US milk production is consumed by domestic markets, the biggest factor for CME Cheese and Butter, has and always will be the buying patterns of our own traders and citizens. Excess loads of Cheese and Butter that in the past would have found themselves offered in the CME cash market have been easily cleared overseas during most of 2011. The market is simply pricing in a soft patch for demand. September thru December Class 3 futures are down another dime overnight to $18.46 per cwt. Butter futures during the same time period average $1.95 per lb.

All eyes in Dairy should be on how the USDA Grain production and Aug WASDE moves grain futures this am. The average trade forecast for new crop Corn production was 13,082 billion bushels. Last months report forecast it at 13,470 million bushels. This mornings report showed the crop to come in at 12.9 billion bushels. Yields are now expected to be 153 bushels per acre on 84.4 million harvested acres. Corn ending stocks for the 2011/2012 season are now expected to be 714 million bushels compared to last months forecast of 870 million bushels. Corn futures are expected to open limit up. This years soybean crop is expected to total 3.06 Billion bushels, down 8% from last years crop. The number was also well below expectations. New crop soybean futures are expected to also open limit up.

–
Ronald K. O’Brien II
RKO2 Futures & Options LLC
Office:(305)960-7890
Cell:(312)446-1565
www.rko2.com

*This report includes information from sources believed to be reliable and accurate as of the date of the publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of futures contract and or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.

The happenings in today’s spot cheese market will determine whether or not the September Southern California Class 1 price breaks the October 2007 record of $23.81 per cwt. Based upon my calculations, if Block cheese were to settle unchanged at $2.10 per lb today, the record will be bested by 2 pennies. The price should be announced later in the day. The California Weighted Average Powder price for week ending August 5th averaged $1.5690 on 12,431,138 pounds sold. The average selling price was 0.32 cents less than the prior week. Alongside CME Blocks at $2.10 per lb and CME Butter at $2.07 per lb, California Class 4a milk is being priced at $20.08 per cwt while Class 4b milk is fetching $19.25 per cwt. Both CME Blocks and CME Butter were down 3 cents per lb yesterday. Similar pressure is to be expected today.

Federal order Class 3 futures were double digits lower this morning in the September 2011 contract. September traded down to $20 per cwt yesterday before rebounding to settle at $20.17 per cwt. Federal order Class 3 milk, alongside spot cheese markets and Nass Whey at 55.9 cents, is being priced at $21.34 per cwt. The futures discount seems wildly exaggerated, yet if there is a trap door under the september contract, cheese selling and long liquidation has the ability to take the contract well below yesterdays lows. Fourth quarter and first quarter futures will likely be guilty by association initially, but once they detach from the NASS anchored front month contract, should return back in the favor by both speculators and commercials. September through December futures currently average $18.73 per cwt. Jan through March 2012 currently averages $17.01 per cwt.

The following article is a must read for all involved in the Dairy market. Click here. It breaks down the fact that hay is now cheaper to ship from Los Angeles to China than from Southern California to Northern California. The information should not be a surprise for dairyman that have to feed the product on a regular basis but it should however, open the eyes of dairy end users, giving them fresh insight into why buying cheap milk isn’t as predictable as in years past.

Sep Corn up 10.25 cents to $6.8850 per bushel
August Gold up $24.3 to $1764.3
Sep Crude up $1.31 to $80.61

–
Ronald K. O’Brien II
RKO2 Futures & Options LLC
Office:(305)960-7890
Cell:(312)446-1565
www.rko2.com

*This report includes information from sources believed to be reliable and accurate as of the date of the publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of futures contract and or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.

Gold fever pushed the precious metal up another $69 overnight to another record high. Last trade, up $42, is more than $100 where it traded last friday and more than $250 per ounce than where it was trading at the beginning of July. A commodity that has zero counter party credit risk and a finite supply makes for a great insurance policy when all else fails. The August 3rd game of chicken our elected officials played with our debt ceiling and the ensuing S&P downgrade of US debt, continues to result in massive outflows from financial markets leading to perceived liquidity/solvency issues at banks worldwide. Dow futures fell more than 700 points yesterday, traded more than 300 lower last night, yet are up 150 points to 10,874 as of last trade.

Corn futures traded almost 20 lower overnight yet managed to close all the way back above unchanged just a few moments ago. Technical weakness has hit all of these markets hard yet grain futures have fared much better over the past week compared to other financial instruments. In my opinion that is because Grain futures had their liquidity crisis back in June when the USDA increased acreage above estimates, and the ensuing speculative liquidation took the corn market down almost $1.50 in 3 weeks. International demand for our commodities will be driven by fluctuations in our currency. Overnight US$ index was down 1/2%. Oil futures have fallen $20 in 3 weeks. Speculators fleeing the commodity markets might have damaged many investors P&L statements yet the move lower should prove stimulative in nature for global demand and productivity.

Dairy futures on the other hand have yawned at this most recent global crisis. In fact, Block Cheese has now settled above $2.10 per lb since July 18th. Fourth quarter futures did receive a shave of 8 to 20 cents yesterday and are down another 9 to 15 cents overnight, but for the most part traders are still making markets. Besides the slight correction during the second week of July, the last sizable decrease in the Block market occurred during the second week of March. On March 11th, blocks settled at $2.0150 per lb. On March 23rd it settled at $1.6250 per lb. Cheese and Class 3 futures are pricing in a 15 cent cheese pullback by the end of the month and a 25 cent pullback by the end of next month. On the other hand, if the cash markets stay put, futures should quickly reflate. If thats the case, it is quite possible that record highs are made this fall considering demand should only pick up from here.

–
Ronald K. O’Brien II
RKO2 Futures & Options LLC
Office:(305)960-7890
Cell:(312)446-1565
www.rko2.com

*This report includes information from sources believed to be reliable and accurate as of the date of the publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of futures contract and or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.

In the biggest one day Dow collapse since December 2008, just about every financial market witnessed investors running for the exits. The exits were however not clearly marked. If a higher percentage of speculative funds had been long the dollar and short stocks and equities going into yesterday, it would have looked a bit different. Yet considering the “short dollar long everything trade” has been ingrained into international markets over the last 2 if not 10 years, when one of, if not the strongest currency in the world, intervenes to weaken itself, the probability for all hell to break loose is increased. Japan has intervened to benefit their manufacturers sector before. In fact they did it just a few months ago.

What made yesterday different was that domestic stock markets were sitting on the edge of a cliff prior to the decision. The entire qe2 rally (which pushed stocks back up to early 2008 levels) had been for the most part teetering since late April. Stocks had showed signs of life mid July when the Dow traded as high as 12,749, but as the debt crisis in both Europe and the US continued to hold capital markets hostage, a major capitulation event was brewing. Everyone had been for the most part focused on Washington’s antics going into the August 2nd deadline. Once the downside risk was cleared and the short covering rally failed Sunday night, attention turned to reduced spending, reduced consumption, US debt to GDP near 100%, and the lack of any type of economic optimism. Japan was simply the last french fry in the super value meal.

Looking at monthly charts can give better perspective of not only where we have come from but where we are heading. Looking at monthly charts on the dow, we will have to break below 9400 to kill this bull market in my opinion. In Crude Oil, the same price point is $66 per barrel. In Gold is just over $1000 per ounce, in Corn its $2.66 per bushel, in Cattle its $86 per cwt and in Class 3 milk it can be as low as $11 per cwt. Markets can clear the deck and eliminate 100% of a bull move just to test the resolve and staying power of its participants. Now if we get to even $14 milk, many, if not everyone in the industry will of course say we are in a bear market. But considering the move we have seen in commodities over the last 7 to 12 months, a major retracement should never be ruled out. This is why it is essential for buyers and sellers of commodities to always be participating in market moves. I understand the nay-sayers that say “if i did nothing i’m better off.” They even have the charts and data to prove it. Well that is only true for the sellers that can withstand the deepest darkest valleys. Or for the buyers that can handle the highest of peaks. My advice is to smooth out the risk and may the force be with you.

Class 3 is getting chopped up once again this morning down 11 to 20 cents in the Sep thru December 2011 contracts. Yesterday saw those very contracts down between 13 and 26 cents on the close. Buying support was absent in the cash cheese market, which opened the floodgates yesterday. In this morning release of NASS prices for week ending July 30th, both Whey and NFDM saw price advances. Whey finished the week up 0.9 cents to $0.559 per lb and NFDM came in at $1.58 per lb (+2.9 cents). Alongside today’s spot CME Cheese and Butter price, Federal Order Class 3 milk is currently priced at $21.71 per cwt and Federal Order Class 4 milk at $20.32 per cwt. As of last trade, September thru December 2011 Class 3 futures average $18.72 per cwt while the same time period in Class 4 averages $18.88 per cwt. The discount might be valid considering the lack of risk takers in the milk markets, yet with each passing day of spot Cheese and Butter above $2, the discounts will likely narrow.

Sep Corn down 8 to $6.8575
Sep Dow up 110 to 11,481
Sep Crude up .37 to $87

–
Ronald K. O’Brien II
RKO2 Futures & Options LLC
Office:(305)960-7890
Cell:(312)446-1565
www.rko2.com

*This report includes information from sources believed to be reliable and accurate as of the date of the publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of futures contract and or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.

When looking at financial markets this morning, the more than 3% move lower in the Yen is front and center. Apparently, the Bank of Japan unanimously voted last night to intervene in their currency market, in an attempt to slow down the yens recent appreciation. Yen selling and dollar buying is shaking weak longs out of the commodity futures this am, with sizable losses seen across the board. Besides Gold which is making record highs at $1678 per ounce; September Corn is down 11.25 , Beans are down 15, Crude is down almost $2 and Dow futures are already trading 150 points lower. The Dow since July 22nd has now sold off more than 1049 points.

Yesterday’s move in the dow, which broke the neckline of a head and shoulders pattern had investors running scared out of the recession bear cave. Technical sellers are not emotional (computer programs care little about the value of your 401k) and rarely if ever care about supply and demand fundamentals. Technical weakness across many of these markets has the potential to shave another 10 to 20% out of current prices in the very short term. Commercial hedging programs must take advantage of any and all breaks in input prices. Also, if you had missed out in allocating some money into the stock market, now might be the right time to wade into the pool, considering the increased pessimism. Be bold when markets go cold.

Class 3 milk is becoming ever so more volatile with each passing day. When questioning the wild moves, remember the motto “Liquidity is not achievable without liquidation.” Considering all of the cheese being brought to the CME over the past few weeks, it appears as if many in the industry cant sell their product in the open market at todays prices. They need a break in order to keep their current customers orders flowing. However, it also appears that one of the largest cheese entities in the United States is more than willing to accept the offerings regardless of price. My thinking is that they did an unbelievable job hedging not only Cheese-milk futures but likely had swaps and forward contracts off the exchange at much lower prices. This has given them the edge, with lower break-evens than their competitors.

They of course dont have to pass those savings across to their customers but if they want to increase market share it is their choice to make. It also seems as if the block sellers (traders, customers, friends, etc) that are bringing the cheese to market are trading ahead of their own positions in the futures pits. That has given the market two 40 point selloffs in two days. The paper however is bid right back up following the cash support. Class 3 futures between August and December now average $19.59 per cwt, up a nickel in overnight trade. Cash fundamentals price Class 3 at $21.72 per cwt.

If we sit still in the CME Block market through the 10th of August and if the western whey price holds tight during todays release of Dry Products Price Summary, we should see not only a $24 handle in the Southern California Class 1 milk price for the month of September but the highest price in history. The current record is $23.81 per cwt, made during October of 2007. The Powder bus has slowed down over the past few weeks but the Cheese/Whey bus driver still has his foot on the gas. August thru December 2011 Butter futures average $2.03145 as of last trade while August thru December 2011 NFDM futures average $1.46905. Both of those averages are discounted well below current cash markets.

If the 1.21% move higher in the US$ index this morning isn’t enough to keep the corn market under pressure, weak export sales for week ending July 28th should do the trick. Corn sales totaled 758,600 tons for both old and new crop. A consultant out of China this week had stated that China could import as much as 6 million tons of Corn this year but as of yet we continue to see no such purchase plan. Wheat sales for new crop totaled 499,600 tons. Soybeans saw a reduction in old crop by 405,600 tons and sales of new crop total 1,085,800 tons. International traders are still nervous about just how many acres the corn price bought away from beans.

–
Ronald K. O’Brien II
RKO2 Futures & Options LLC
Office:(305)960-7890
Cell:(312)446-1565
www.rko2.com

*This report includes information from sources believed to be reliable and accurate as of the date of the publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of futures contract and or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.