Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Class III futures closed the week rather quietly as volume was once again below 1,000 contracts Friday at 898 trades. Nearby months moved sharply higher, following the spot session rebound in the barrel closing higher by 7 to 29 cents in Q2 months. The barrel erased Thursday’s losses, increasing by 5.25 cents on the day on five trades.
Market chatter continues to be that blocks are readily available, while barrels are in a bit tight, though we suspect that there is barrel cheese out there.
Taking a look at the pack charts week over week seems to give some insight into the current trade psychology. The April to June pack closed last week down 11.3 cents at 15.27, while the July to Dec pack lost a much more significant 26 cents, closing at 16.26. The forward curve is flattening somewhat. Although important to recognize because severe bear markets in dairy are usually hallmarked by steep spreads between contract months ― not flattening prices as we see ― to make an argument that such a development is somehow less bearish is likely fruitless at this time.
For now, the market hasn’t yet been able to fall sharply enough to trigger a massive removal of cows from the herd in order to lower current production levels and allow for a potential significant second- half price recovery that some felt was coming. However, some contacts in one of the most flush milk-producing states, California, report that cows will freshen later this summer due to a slightly delay in breeding last fall. If we have a hot summer, this will likely lead to milk production problems outside of profit margin concerns in California.
While we can’t say we see futures prices falling off a cliff in the short term, the likelihood of a price recovery seems very slim and thus we continue to be moderate market bears on the cheese market, believing that Class IV products will continue to fall and that should eventually lead to a slightly softer cheese market as well.
The corn market started last week on a weak note and ended the week that way. For instance, last week was just the second time in the past 12 weeks that new crop soybean prices closed lower, and it may be the turnaround the bears are looking for. A rapid planting pace, combined with beneficial weekend rains for the slightly dry north/western corn belt areas, should keep the pressure on prices early this week and the market is looking for corn planting to be 18 to 22 percent completed on this afternoon’s report. One southern Minnesota farmer we know was 20 percent planted as of Friday and eagerly awaiting the rains. In the short term, we look for a strong planting pace and seemingly very soft general markets to continue to drag upon prices.
We look for corn to open 6 to 10 cents lower and soybeans to open 8 to 12 lower.
Daily CME spot market prices:
Block cheese: $1.4875 (unchanged)
Barrel cheese $1.46 (up 5.25 cents)
Butter: $1.425 (unchanged)
Grade A NFDM: $1.1925 (down 2.5 cents)
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.