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Veteran Advisor

From the parlor pit 5-25

Good morning from balmy north Iowa. Yesterday we reached a high of 94 here. The wind blew all day and into the night. The weather cooled off though about 3:30 when my alarm went off this morning.  Looks to be a nice day with a chance of showers this afternoon I hope somebody mows hay to increase our chancesSmiley Very Happy

Well yesterday we answered the 2 million dollar question. What price will we open up with at the CME for the new SMP contract?

The answer was 3100 dollars per metric ton. This translated into $1.40 per pound.  How does that compare to the world price?

The last Fonterra auction averaged for July at 3555/metric ton, or $1.60 per pound. 

On the day there were no trades made.  So we don't know yet if this an accurate price offering or not.

Before anybody thinks it is a real bad thing that there were no trades and claims milk is about to tank from this lackluster performance remember that yesterday we had no trades in NDM either.  It held steady at $1.25 per pound.  

I was happy with the price that was used in the open.  I think that if we/they had tried to tie the CME price directly to the NZ/Fonterra price we would have been artificially trying to raise our price to a world price that is FOB NZ.  I am content to let NZ set the price to be used for the world (At least for SMP).  

I did have to laugh though at their explanation for why there was no trading: wondering what the EU was going to do with their announcement to release butter and powder stocks.

I happened to e-mail someone from England with a pulse on the production as well as the government policy workings over there for some answers.

Basically he said Last year with the spectacle of milk dumps and farmer protests from horrible milk prices the Ag ministry bought up a large amount of surplus milk.  They are now slowly going to sell this product back into the mkt. As the cost of storage is very high and there level of money to pay for storage is very low!  So they are going to release some of these holdings for auction but will not try to overburden the mkt. With this supply. I view this as a non event from the standpoint that any future offerings must not hurt the farmers in those countries so if this initial offering goes badly and drives prices lower. THe rest may continue to be stored shutting the warehouse door very effectively! SO we wait for the first week of June to see what price they receive and then what that foretells for further releases. Also that first week of June will include another fonterra auction. Won't that be an interesting week?

Well that's all from the parlor pit if any of this makes any sense to you and you use it to formulate your trading practices today you got more guts than me (or even less brains). Be careful out here it's a jungle! JR

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