Dairy margins continued to advance over the first half of June, supported by a combination of higher milk prices and lower corn and meal costs, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging, LLC. Forward margins remain extremely favorable from a historical perspective, at or well above the 90th percentile of the previous 10 years.

Class III milk futures have made new highs over the past two weeks, as cash cheese trade has firmed slightly since the end of May. There continues to be uncertainty surrounding the price outlook for the market going forward, however. Fonterra announced its 2014-15 initial farmgate milk price forecast, which adjusting for exchange rates, would translate to an average U.S. all-milk price equivalent of $18.40/cwt. for the July 2014 to June 2015 period. This compares to the average futures price on the CME for the same period of around $19.30/cwt. This discrepancy may become more of an issue moving forward as U.S. dairy product exports face increased global competition from other sources.

USDA’s June World Ag Supply & Demand Estimates (WASDE) report was considered largely neutral for the corn and soybean markets.Corn ending stocks were left unchanged in both the old and new-crop years, with no changes made in either balance sheet. Old-crop soybean ending stocks declined 5 million bushels due to a stronger crush forecast, and this filtered through to the new-crop balance sheet. Weather remains very conducive to early season crop development, and above-average yields are possible should conditions stay favorable though the summer.

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