Stable spot market boosts July/August futures

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Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

There was surprising buy side strength in Class III to close the week last week. An offer took a while to make its way into the spot market Friday, but it was the first action. It did not take long to get snatched up, and that sent futures prices upward quickly. Preceeding that, barrels were bid and then bid up toward an effort to keep the spread between blocks and barrels in line with historic standards. Friday brought it a penny closer to “normal”.

Despite the significant strength front month futures showed to close the week, there was still a decline in the July-Dec pack on the week, as it closed at $18.21 vs. $18.31 a week earlier. While the weekly extended packs continue to slide slowly in a slight consolidation mode, the early month July contract broke out, closing at $20.27 vs. $20.04 a week earlier. While the nearby months gained big, the Nov 2011 through Dec 2012 contract all fell by as much as 26 cents. We are hearing mixed reports on the availability of cheese; some tell us they are able to buy loads under the board price, but others report a tightness of supply. This represents that a shift is under way toward softness, but it will take some time for it to be widespread.

Slaughter numbers released last Friday were perplexing. Slaughter was up 7.2% year over year for the Jan-May time frame, with the highest slaughter numbers in 14 years. Despite the strong slaughter, which must be due, in large part, to high beef prices and second to questionable margins, dairymen still added 59k cows Jan-May. This confirms the large number of replacement heifers that were out there and likely still are. We have also recently heard of more than one foreign buyer trying to locate large numbers of U.S. cows for export, but having a difficult time.

We look for Class III to open mixed.

Last Thursday night, corn prices were higher; about 12 cents in old crop and about 6-8 cents in new crop. By the time Friday morning markets opened up, weakness was prevalent. Most of the day last Friday was spent chopping around with a leaning toward the upside, but then late in the session pries got slammed yet again.

General market weakness with equities getting pressured again and showing signs of remaining weak going forward, U.S. dollar firmness and good growing weather overcame bullish grain prospects.  The corn market has shifted to a sell the rally market and will unless the USDA shocks us.

We look for corn to open 5 to 7 cents lower; soybeans to open 5 to 8 lower.

Daily CME spot market prices:

Block cheese: $2.13 (unchanged)

Barrel cheese: $2.0775 (up 1 cent)

Butter: $2.06 (down 2 cents)  

Grade A NFDM: $1.625 (down 1 cent)        

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.

Source:  FCStone/Downes-O'Neill


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