Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Class III futures closed out the week mixed, but mostly lower on a total of 946 trades, with settlement prices ranging from unchanged to down 40 cents in July. A majority of the trading action ― 87 percent of total volume ― was contained in the June through August months. The June to August futures pack lost 23 cents on the day to settle at $15.78, a 35-cent decrease from the same period last week. Class III futures fell hard after the results of the spot session, which saw the spread between blocks and barrels widen to 11.75 cents. The trade seemed more concerned with the barrel cheese price than with block Friday. Though blocks pushed 3 cents higher to $1.65, barrels also pushed higher earlier in the session, traded and closed down 0.25 cents on offers.
The Class III market has been forced to contend with a gloomy international economic outlook, as issues within the European Union continue to rattle markets. Coupled with the prospect of an influx of fluid milk as schools close for summer vacation, the Class III outlook looks bearish with furthering selling in the coming sessions.
On Thursday, the Department of Agriculture released its preliminary milk-feed ratio for the month of May at 1.38. This number is the lowest on record, which goes back to 1985, as dairy producers contend with high feed costs in the face of lower milk prices.
Australia’s milk production was reported at up 7.7 percent from the same period last year. This puts Australia’s total milk production up 4.3 percent for the first 10 months of the 2011/2012 season over the same period last year. Australian dairy producers have concentrated more on cheese and whey production, with cheese production up 4.3 percent and whey production up 7.7 percent from last season. WMP production has fallen by the wayside there, dropping 5.7 percent from last season.
The Dairy Products Report for the month of April was released last Friday. Total cheese production was 902.6 million pounds, up 2.1 percent over the same period last year, but down 1.5 percent from March’s production level. American cheese production totaled 372.0 million lbs, up 0.5 percent over March and up 3.5 percent over last year. Mozzarella production fell 2.1 percent from March to a total of 299.5 million pounds. The report looks slightly bullish for the cheese market, and the drop in cheese production rate may translate into a bullish drop in whey production as well.