Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Pressure was brought on the bulls yesterday and last night.
There is talk of Class I school startup demand causing some short-term tightness at the moment, but cheese buyers are simply frightened away by the $1.80 price level. But remember that true bulls consolidate, coil and continue moving upward after slight retreats. Bears are clinging to matters such as who is doing the spot buying (not a lot of end-users), but no one has gotten much in their way until now. It could be profit-taking in advance of the milk production report; it could be trading in sympathy with softening corn prices.
With $8 corn equaling roughly an $18 break even, dairy producers still have opportunities on the board, and min/max strategies allow for further upside. Open orders for 18/22 should be left out alongside similar corn hedge orders, while end-users here should be buying call spreads on the price break in milk.
Three weeks to eight weeks ago, we were all talking about how there was no rain. Now, we are talking about where the rain was ― was it enough rain, what’s the impact on demand from the price increase? The fright has shifted. It has been acclimated to crop conditions shifted from five to 10 percent declines every week to steady this week ― the fright has passed.
All the above being said and holding true, $8.00 corn in Sep and Dec and March is holding as a psychological super magnet. And, until we move drastically away from it on a closing price point, we will continue to be drawn back to it. While rains have improved the health of the beans and stabilized corn, yield damage looks irreversible.
We look for corn to open 6 to 7 cents higher and for beans to open 1 to 15 cents higher.
Daily CME spot market prices:
Block cheese: $1.8525 (up 0.25 cents)
Barrel cheese $1.82 (unchanged)
Butter: $1.7525 (up 0.25 cents)
Grade A NFDM: $1.50 (up 2 cents)
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