Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
The 20+ cent block/barrel spread from earlier this month has finally fallen to a level within proximity of the “normal” 3-5 cent range. In fact, with CME block cheese down 2.5 cents Wednesday to $1.7550 on four trades and barrels up ½ cent to $1.73 on 12 trades, the spread is only 2.5 cents. Earlier this month, many cheese buyers were bearish barrels, but unsure of block prices. They anticipated the spread closing, but with sub $1.70 barrel prices. With support in the barrel market this week, and with the return of the historical spread, buyers were very active in milk and cheese futures yesterday.
Post spot market, Class III futures were able to advance as much as 30 cents in the June13 contract and 36 cents in the July13 contract. Most second-half futures were also up more than double-digits. The May through December average would finish yesterday’s session up 16 cents to $18.55 per cwt. The average is currently in the middle of its Feb 26low of $17.97 and its April 17 high of $19.21.
Current CME spot block/barrels prices, alongside the most recent AMS weekly average for whey, yield a Class III price of $17.75. The 70+ cents of premium across the remainder of the year show just how optimistic traders are. May to December cheese futures settled Wednesday’s session +.99 cents at $1.8332 per pound. Deferred contracts remained stable, while oversold front months saw additional short covering and fresh buy-side interest yesterday.
International fundamentals were keys to cheese and Class III averages making their respective highs mid-April, and the lack of export interest at those higher prices, were key to its pressure since. Low $1.70 block prices have, however, spurred extra interest in domestic cheese. With the CWT announcement Tuesday and the lack of any cheese offered on the GDT yesterday, global demand should continue to stabilize CME spot prices.
Spot session results:
Block cheese: $1.755 (down 2.5 cents)
Barrel cheese $1.73 (up 0.5 cent)
Grade A NFDM: $1.68 (down 2 cents)
Butter: $1.595 (up 0.75 cent)
Better weather prospects and talk of improved plantings pace put some pressure on new crop corn prices, but technical support at $5.30 is still holding. Look for talk of improved planting pace to continue as the dominating theme amongst traders the rest of the week.
This morning, we look for the grain complex to open firm.
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