Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
It was an interesting start to the week as prices found strong support early in the day and the gains did not relent throughout the session. Prices saw double-digit increases pre spot session and, despite a lack of any action during the spot market, prices continued to trade firm.
The main reason for gains seemingly the discount on futures relative to the spot cheese prices. We calculate current spot values near a 21.50 Class III equivalent vs. futures coming into the day sub $21.00. There also seemed to be notable spread trading with Nov closing up just 10 cents while Dec through March futures gained 15 to 32 cents on the day. Current trade sentiment seems to mostly favor price movement quieting down for a period of time with the anticipation being that any sizeable move likely to favor the downside. While this may be the general consensus, we continue to hear of strong and stronger-than-expected domestic sales.
Grain futures traded mixed but mostly lower as continued pressure during yesterday’s session likely came as a result of the bearish estimates from Informa on Friday.
The market is getting increasingly mixed signals with a tight carryout seemingly growing larger according to private estimates (INTL FCStone/Informa); however, average trade estimates for Thursday morning’s reports are projecting far smaller total production than those private numbers. It seems headed into Thursday’s report equilibrium on corn is just below the $7.50 mark, while soybeans seem to be looking at $15.50 equilibrium. Difficult to say which side the majority of the risk lies on headed into the report, but given the lower production estimates we’d think the risk of the big move is likely to the downside should USDA’s production number come nearer the private estimates. Should the market break toward the $7.25 mark, as it was heading into the stocks report, we would be looking to purchase additional physical bushels and buy puts below the market for downside participation should a sizeable drop occur.
Look for corn to open 3 to 5 cents higher and for beans to open 17 to 20 higher.
Block cheese: $2.10 (unchanged)
Barrel cheese $2.06 (unchanged)
Butter: $1.925 (up 6.5 cents)
Grade A NFDM: $1.66 (unchanged)
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