Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Technical selling gripped the Class III and cheese futures markets Thursday as the brief short-covering respite faded and the downward trend resumed along with heavier volumes.
Prices started off in negative territory after Wednesday’s somewhat bearish Dairy Products Report for cheese. With little other news to inspire buy interest, it took a mere 2.50-cent decline in the barrel market to slam prices lower across the board and to new trading lows on July thru December contracts.
The farm-level situation across the country looks grim. Dairy farm profitability was under assault again, and the forward curve offers little in the way of farm hedging opportunity, in our opinion. In fact, such a sharp decline is much more often a “capitulation” ― an emotional “giving up” in trading ―rather than a rational price decline based solely on fundamentals.
Remember, if producers can’t make up some ground with hedges already in place, beef sales and/or a future with cheaper feed prices, expect swift action to cut farm costs. This will not shorten the milk supply immediately. But it may have far-reaching implications, especially as we heat up with the summer months ahead.
Cheese futures traded between .024 and .048 cents lower in a free-fall yesterday. Volume jumped to nearly 500 contracts as prices fell under similar technical conditions found in Class III. The second half average is now flirting with $1.60, which we expect will entice another wave of commercial buy interest.
We shall see.
In the grain complex, new crop corn and soybeans lost some ground Thursday as the trade remains on guard for good planting and growing weather. Good rains covered a good portion of the Corn Belt over the past two days, with the northern and eastern areas expecting to get better coverage in the next week. Not many dry days between now and Sunday. All of the rain will slow planting progress, but remember we are already far ahead.
We look for corn to open 2 to 3 higher and for beans to open 4 to 6 higher.
Daily CME spot market prices:
Block cheese: $1.535 (unchanged)
Barrel cheese $1.47 (down 2.5 cents)
Butter: $1.345 (down 1 cent)
Grade A NFDM: $1.1475 (unchanged)
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.