Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
The corrective move lower continued Thursday, as Class III and cheese futures slid lower amid another round of spot market bidding, which pushed the price of block cheese to a new, all-time high price of $2.2950/lb. – a penny better than the high of May 2008. Barrels too, pushed to a new high of $2.2575/lb., eclipsing the previous high of $2.25/lb. in May of 2008.
Corrections happen in all markets, and Class III or cheese are not immune. The past two days have earmarks of corrective market behavior. Some buy-side speculators are shrugging off, disbelieving in the sustainability of record-high cheese prices. Producer selling has also picked-up in the past two days as sell-side hedgers look to capture $2.50-$4.00/cwt. profit margins through June.
Meanwhile, the action has really created what looks like unsustainable spreads between spot and futures. February is near a $1.00/cwt discount to spot, and March is closing in on a $3.00/cwt. discount. And with milk production treading water, we look for the spot/futures spreads to narrow in the coming sessions, and for the time-being we expect futures to rebound. Today, we look for Class III and cheese to open firm; dry whey to open mixed.
Class IV, butter and NFDM markets all traded lower yesterday on lighter volumes, relatively speaking. Spot butter fell 4¢ to $1.90/lb., while Grade A NFDM fell 1.5¢ to finish at $2.07/lb. Class IV followed suit, trading lower as bids became scarce. Is the buy-side belly full of NFDM? That is the million dollar question, as NFDM has been the leader of dairy bull market over the past 6 months.
Today, we look for Class IV, butter and NFDM to open steady to slightly higher.
Jan. 23 spot session results:
Block cheese: $2.2950 (up 2.5¢)
Barrel cheese: $2.575 (up 1.5¢)
Grade A NFDM: $2.07 (down 1.5¢)
Butter: $1.90 (down 4.0¢)
The corn market continues to trade in a rather tight range. The market seems to feel corn has a good value at current levels. Livestock margins, ethanol margins and exports all seem to be working to support current levels. Speculative traders continue to view rallies as selling opportunities.
The soybean market is focused on the prospects of a record South American crop. The window for weather to dramatically change the size of the Brazilian crop is starting to close. Market participants are watching for China to cancel or roll purchases.