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

A lot of news released late last week regarding the future of the dairy industry… New Zealand milk production was up 13 percent for February, 9.1 percent when adjusted for Leap Year, with production growth for the season from June 2011 to February 2012 up 10.6 percent. Estimates indicate that New Zealand’s production had continued to expand strongly through March and April. Australia followed suit with a 2.9 percent increase in production for the month of March, and a season to date production rate of plus 4.1 percent. This information on reaffirms what we already know, that there is an abundance of milk out there trying to find a home and pushing product prices lower around the globe. 

The Senate Agriculture Committee approved a farm bill draft Thursday that contains supposedly critically needed improvements in dairy programs, but not everyone is sold on the idea.  The International Dairy Foods Association has come out and stated that they are disappointed that the Dairy Market Stabilization Proposal has stayed within the farm bill. Jerry Slominski, senior vice president for legislative and economic affairs at the International Dairy Foods Association, issued a statement detailing his concerns that the bill includes a dairy market stabilization program, which he believes will raise consumer prices, hurt exports, cost thousands of new jobs and stifle investments in new facilities. The bill may still face opposition on the Senate floor before final approval, giving those opposed a glimmer of hope for repeal. 

In the markets last week, volume picked up a bit to end the week for the Class III, with 1,049 contracts trading into a mixed but mostly lower close. Futures settled from down 17 cents to up 3, as the monthly contracts pulled back from their intraday lows. The market seemed to lack a definitive direction as most dairy markets finished the week with mixed results. The Class III market, along with most of the products, has been under unrelenting selling pressure recently as the fundamental outlook for the complex remains negatively based. 

The popularity of the blocks market over barrels continued Friday, with seven trades in the blocks to just one in the barrels. The spread between the two narrowed slightly, but still sits at 10 cents. The blocks were able to gain a substantial boost in interest, as 28 total trades transpired on the week versus zero the week prior. Barrels saw 25 total trades for the week, down slightly from last week’s 31 trades. Despite last Friday’s barrel move upward, we feel that the blocks look more susceptible to selling pressure this week.

The grain complex finished the week with a strong performance, pushing all grains higher on Friday. Weekend rains in the west are holding back some more corn planting, but the east continues to be well on its way to completion. There seems to be some last-minute rationing around old crop corn and that helped add pressure to the upside and in addition great export news with China buying. 

May corn ended up 40 ½ cents above the previous week’s close. July finished 18 higher to $6.25 ½ and the rest of the grains followed suit. Beans were through the roof on the open, but reeled in some of the early gains with some intra-day profit taking and some burnout after the sharp rise.  The bean market continues its steady long term rise, and continues to build momentum. Beans finished up 13 ¼ in July at $14.93 ½. 

We look for corn to open mixed and for beans to open 7 to 11 lower.

Daily CME spot market prices:

Block cheese: $1.5350 (up 0.75 cent)

Barrel cheese $1.435 (up 1.5 cent)

Butter: $1.36 (unchanged)  

Grade A NFDM: $1.1475 (down 1 cent)

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