Editor’s note: This market commentary is provided by Dave Kurzawski a risk-management consultant with FC Stone/Downes-O’Neill, Chicago, Ill.
Class III futures traded a lighter, 1,600-contract volume in a mostly mixed fashion Wednesday. Nearby contracts moved slightly lower, and some firming occurred for the second half of 2011 contract months. But when the dust settled, the February to December futures price average finished unchanged at $17.20 per hundredweight. With the largely lackluster trade, one would be surprised to note that both the CME spot block and barrel prices rose again to finish at $1.90 and $1.8325, respectively. A clear divergence of direction between the cash cheese market and futures is now occurring and that divergence, we believe, further supports the idea of an imminent futures price correction.
Most of the time, across a range of commodities, the futures markets will lead the cash market. The same is true in the wide world of milk futures and spot cheese pricing. But, as you might expect, when dealing in dairy there are always exceptions. And during our tenure in the dairy industry, we have seen the opposite situation develop — one in which the spot market actually appears to be leading futures.
So, while it is possible for the futures to firm up in respect to higher cheese prices, we don’t expect that type of trade to develop here and now. The recent Class III futures trade looks more like a subtle anticipation of more cheese shaking loose at these levels. Look for a mixed to lower open on Class III this morning.
Butter was quiet again at $2.10 yesterday, and we should still be expecting a move from $2.10 here shortly, but ambivalence in butter did not stop Class IV. Class IV traded higher yesterday with the April through July contracts leading the charge higher. All four contract months hit $20 per hundredweight, but it was only the June contract that settled there. Interestingly, the February to December and March to December Class IV packs were trading unchanged to 15 cents per hundredweight lower, while individual contracts in Q2 and Q3 traded 20 cents to 40 cents per hundredweight higher. Class IV producers are taking advantage of these higher prices, and we look for more of a mixed trade here this morning.
Spot NFDM buyers were back at it again yesterday after a brief two-day reprieve from their bidding. Grade A finished up 2 cents to $1.74, and futures followed trading steady to 2 ½ cents higher. Look for a steady opening this morning.