Dairy markets: Where's the top?

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

Class III futures put up another day of gains across the board, following a spot session that saw blocks gain 2.5¢ to close within a penny of the all-time high, at $2.35/lb. Futures seem to be reluctant to keep upside momentum at these levels, but are left with little choice with continued gains in the cash market. April led the way, picking up 35¢ to close at fresh contract highs of $21.81/cwt.

So, where’s the top? It’s a question that has resonated now for weeks – with no clear cut answer. It’s a fool’s guess to try and pick tops in the market, or bottoms for that matter. Fundamentally, this market continues to have firm undertones to it that can be attributed to strong international interest for cheese. Granted, a pushback should be expected somewhere on the short-term horizon at these price levels, with spring flush in full swing out West and coming in the Midwest. That's coupled with the latest international price data that reflects a growing disconnect between Oceania and the U.S. market. However, with domestic buyers purchasing on a hand-to-mouth basis, it’s not implausible that a certain level of demand will exist on price breaks.

Class IV futures saw mixed results. Gains were realized from March through May, with lighter gains realized in the fourth quarter. NFDM appears to be stable, yet sluggish. The spot market has provided little in the way of sentiment or direction, yet there have been whispers of an easing of demand at current levels and adequate supplies domestically. European dryers have also been ratcheted up to full capacity, which will further pressure prices from an international scope. Price weakness has also been experienced in Oceania and Western Europe.

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

 

March 13 spot session results:

Block cheese: $2.35 (up 2.5¢)

Barrel cheese: $2.2750 (down 1.0¢)

Grade A NFDM:  $2.04 (unchanged)

Butter: $1.8850 (unchanged)

 

Today's expectations:

• Class III to open mixed

• Cheese to open mixed

• Dry Whey to open mixed

• Class IV to open mixed

• Butter to open mixed

• NFDM to open mixed

 

Grain futures

The grain market traded in mixed fashion yesterday, with corn unable to pull away from its 200-day moving average. Nevertheless, there’s a firm tone here in that exports have been impressive, funds have been buying, and the weather has not been cooperating. Soybeans, on the other hand, put on quite a performance. The market is closely monitoring progress with the South American harvest, as well as Chinese behavior that has resulted in cancellations of Brazilian and U.S. cargoes. Keeping a finger on the pulse of this development would be prudent as a changing of the guard may be taking place here.

 

Today’s expectation:

• Corn to open higher

• Soybeans to open lower

 

The trading of derivatives such as futures, options, and swaps may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Any reference to past performance is not indicative of future results. All references to futures/options trading are made solely on behalf of FCStone, LLC. All references to swap execution and bi-lateral swaps are made solely on behalf of INTL Hanley, LLC. FCStone, LLC will clear swaps when applicable. Swaps are only available to eligible counterparties. All observations of economic, political and/or market conditions are not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. and its subsidiaries and should be construed as market commentary. All recommendations to buy or sell a specific derivative or forecasting statements regarding market activity and the pricing thereof should be construed as a solicitation in any jurisdiction in where such an offer or solicitation would be legal. Proper context and guidance including but not limited to the particular trading objectives, financial situations and the needs of the intended audience were taken into consideration when this recommendation was prepared. Contact your account representative for specific advice to meet your specific trading preferences or goals. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. and its subsidiaries. Sources of information believed to reliable were used in preparing such observations, and no guarantee or representation regarding the accuracy of those sources has been made. INTL FCStone Inc. and its subsidiaries are not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material.


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