Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Last week will be remembered for the resounding strength of a screaming butter market, as well as solid gains from spot cheese, which finished the week north of the $2.20/lb. mark for both blocks and barrels. Although Class III futures experienced some profit-taking and diverged from cash trade, it was not before significant gains.
It marked the fifth consecutive week of higher highs and higher lows. From a fundamental perspective, we are hearing cheese production out West is holding steady, but is lacking in other areas of the country. Barrel tightness in the Midwest is contributing to the firm undertones that have triggered recent price spikes.
Based on Friday’s settling spot market, September’s Class III milk price would be $23.30/cwt., up from $22.18/cwt. the previous week. With strong advances in the nearby contracts, deferred months have reluctantly tagged along, and by weeks’ end the 4Q 2014 pack average had picked up 18¢, settling at $19.99/cwt.
Cheese futures have largely traded in sympathy with Class III price movement over the past few sessions, and will have a firm bid under them as long as the spot market continues on its current trajectory.
Dry whey futures continue to trade range bound, with hedge interest at times extending well out into 2015. The market tone is mixed, as are inventory levels. The market is weighing whether slipping international prices will pressure the market lower, or whether lackluster production levels that have pinched the whey stream are enough to counterbalance.
Class IV futures continue to sort out conflicting price signals. Fear, greed and panic all culminated to propel the spot butter market 26¢ higher on the week, to its fourth highest level in history. Aggressive upside inertia has yet to be quelled, and while initially the futures market was hesitant to tail the move, it was left with little choice as the cash market kept climbing, which inevitably triggered lock-limit moves higher. Tight inventory levels and lower churn rates have underpinned the market, as buyers scramble to get ahead of the ensuing demand season.
NFDM futures continued to falter in lock-step fashion with an eroding spot market, which shed 14.5¢ over the course of the week, settling at $1.3975/lb. The market has come under heavy selling pressure as international prices continue to slip and buyers are reluctant to step out and make purchases at these levels. The trade will be closely eyeing this week’s Global Dairy Trade (GDT) auction for further indications on market sentiment.