Know Your Market
The Votes Are In: Milk Market Activity Spikes with Price Pressure
Nov 08, 2010
How the milk market follows through this week and next week could have a notable impact on the direction of prices heading into 2011 and set the tone for next year.
By Steven Schalla, Stewart-Peterson
Last week was another wild week for milk prices, not only for price change but also volume of trade on the CME Class III Milk and Cheese futures contracts. Most notably was action in the December milk futures contract. After starting the week as high as $14.44, prices fell with pressure from lower cheese prices, closing the week at $13.56. Needless to say, the volatility continues.
Not only was the price change significant, the volume of contracts exchanging hands was phenomenal. Typical daily volume for the second and third month in the future is 200 to 300 contracts. However, last week in the December futures contract we saw 600+ on Monday, 500+ on Wednesday, 900+ on Thursday, and Friday featured over 1,300 contracts trading hands.
In addition, we also saw increased volume in the new Cheese futures contracts, highlighted by a single day volume record last Wednesday.
So why is this important to you?
Think about each contract that trades as a vote. Each “voter” or market participant is making his or her decisions based on their own goals and purposes – whether they are a milk hedger or speculator, or think the market may go up or down. When volume spikes, it suggests that many market participants believe that something important is happening and are therefore taking action accordingly.
Last week, we saw sizeable selling pressure, notably in nearby contract months like December, as Cash Cheese prices set back lower to the $1.50 per pound price level, which, based on technical indicators, was major support (suggesting buying interest).
To be clear, I’m not suggesting that you should have been taking action last week just because others were. You should always make your own decisions based on your individual goals and risk management strategies.
What I do want to point out is this: History teaches us that these points in time (of increased volume) can have a large impact on setting up what comes next. How the milk market follows through this week and next week could have a notable impact on the direction of prices heading into 2011 and set the tone for next year.
With so much financially on the line in the dairy industry, I continue to suggest exploring how various marketing tools can help your operation manage price risk and price opportunity looking into next year. These strategies can range from very simple to complex, so if you don’t know where to start, it is a great time to learn.
: I am pleased to offer my readers access to video segments from our firm’s educational seminars, some of which are taught by Yours Truly, others by Scott Stewart and other team members. Simply go to www.stewart-peterson.com
and sign up to watch a workshop video. Let me know what you think, or come to a workshop near you so I can meet you in person.
Your comments and questions are always welcome—that is how we learn.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2010 Stewart-Peterson Inc. All rights reserved.