Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Convergence! Convergence! Convergence!
With both blocks and barrels moving to new yearly highs, and Class III approaching (and in some cases testing) April lows, we see a market sharply converging. But why?
There are several factors, the first being weather. Reports that portions of New Zealand are finally getting some precipitation bode well for pasture growth. With some predicting precipitation to continue and pasture growth to return to near-normal levels by the end of the quarter, some may be questioning whether the strong GDT results seen as of late can be sustained. If pasture growth returns to normal conditions cull rates will slow and New Zealand may very well be in a better position for next season. With a more favorable domestic weather picture and the spring flush upon us, traders may be reassessing where this market can end up over the summer months, resulting in this correction. That being said, we are still bullish on the spot market ― cheese in the 1.80 to 1.90 range through the summer is not an outlandish expectation. However, weather, demand, New Zealand pasture conditions and input costs remain the x-factors. As these markets converge, we can expect a more sideways pattern to prevail in the short term.
Spot session results:
Block cheese: $1.805 (up 1 cent)
Barrel cheese $1.74 (up 0.75 cent)
Grade A NFDM: $1.75 (up 2.75 cents)
Butter: $1.7325 (unchanged)
In the grain complex, May corn settled up 4 ¾ cents to 649, while May beans settled down 2 ¾ cents to 1392 ¾. It seems to be that the traders were not moved with the numbers in USDA Supply/Demand report. Domestic stocks increased on the heels of the March quarter-ending stocks report, but they did come up shy of expectations, which would’ve been a bit bullish if not for the increase in global ending stocks coming in well above expectations. Those two results mostly offset one another and led to a rather muted price reaction yesterday. .
We expect corn to open mixed from +5 old crop to -3 new crop and beans to open 4 to 8 lower.
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