Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.

Class III futures legged higher for a second day in a row, taking its cue from a stronger cash market. With both blocks and barrels edging higher, futures have rallied in sympathy. Despite the stronger price action, it should be noted that it has occurred on lighter than normal volumes, which would indicate a cautious approach to further upside potential.

Fundamentally speaking, international prices continue to slip, albeit at a slower rate than we have previously seen. We are still hearing of ramped up production levels coming out of Europe, however they are nearing the end of their peak, and in some cases are past it.

From a domestic standpoint, a couple of points need to be addressed.

First, there’s nothing in the rule book that says U.S. prices have to go to international price levels in order to be competitive. Granted, the larger the spread the more likely some demand destruction will take place, but that may not be a bad thing for the market.

This brings us to the second point, in that the market is quite likely performing a rationing function. in that there is still demand for product amidst tighter-than-ideal supply levels. With the California flush over and temperatures on the rise, production levels have stalled there. This dynamic, coupled with a flush season that really has not gotten off the ground in the Midwest, the market never really got that influx or “wall” of milk that has been typical in years past. At this point, even it if does materialize, it will likely be counterbalanced by less production out West.  

Class IV futures posted an upside day in reaction to mixed signals from the NFDM and butter markets. It’s interesting to note that NFDM futures rallied, despite steady to softer price action both domestically and abroad.

 

May 8 spot session results:

Block cheese: $2.0450 (up 0.25¢)

Barrel cheese: $2.0525 (up 1.5)

Grade A NFDM: $1.7875 (up 0.75¢)

Butter: $2.1550 (up 0.5¢)

 

Today's expectations:

• Class III & Cheese to open mixed

• Dry Whey to open steady

• Class IV, Butter & NFDM to open steady to lower 

 

Grain futures

The grain market saw mixed price action in the final session before USDA releases their latest World Ag Supply & Demand estimates report at noon (Eastern). Corn and soybeans both closed in the green in trade dominated by last-minute position squaring. July corn finished up despite yesterday’s lower-than-expected export numbers. July beans were also strong, the result of better-than-anticipated export numbers and the continued tight, domestic balance sheet.

 Crop Production and World Ag Supply & Demand Estimates reports are released later today, May 9.

 

Today’s expectation:

• Corn to open mixed

• Soybeans to open mixed

 

FC Stone's annual Dairy Outlook Conference will be held June 18-19, in Chicago. Visit www.intlfcstone.com/events for information.

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