Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
A quiet but firm trading week dialed up bullish heat on Thursday. Another round of slightly higher spot market prices catapulted discounted nearby Class III futures. February Class III eclipsed Class IV intraday yesterday and then both settled at the same price $23.30/cwt.
The trade is adjusting the forward curve to pay respect to an unrelenting spot market and shrugging off chatter of burgeoning milk supplies out West. Perhaps the early flush action there is being neutralized by worries of what that will mean 3 or 4 months from now. Either way, demand for fresh cheese is of upmost importance and has been the key driver of prices in Chicago.
While we respect the current situation and don’t yet see signs of fresh cheese backing up, we also recognize we’re quickly surmounting international prices and we worry what such a pricing skew will mean for U.S. cheese demand. Still, the supply/demand imbalances have not been sufficiently solved yet, so we may have more room to the upside.
While Class III rallied, Class IV whimpered along at record highs. NFDM supported and butter futures, which traded lower, provided a headwind. The NFDM futures curve seems more than contented to chip away at discounts, as there seems to be an expectation we can have a $2.00 market for some time to come.
Spot butter closed 0.25¢ lower Thursday, leading some to run for cover on the futures, which traded lower. So far, however, this looks to be only a relatively mild price correction. USDA weekly stocks were up 9.8% from the previous week, but are 21.3% below last year.
Jan. 30 spot session results:
Block cheese: $2.3550 (up 1.5¢)
Barrel cheese: $2.32 (up 2.0¢)
Grade A NFDM: $2.0550 (up 0.25¢)
Butter: $1.8925 (down 0.25¢)
• Class III, Cheese and Dry Whey futures to open mixed
• Class IV, Butter and NFDM to open mixed
The grain complex bounced back and closed in the green across the board, on the heels of decent export numbers and fund buying. March corn rallied 6¢ to finish at $4.335/bushel. Facing the headwinds of a friendlier extended weather forecast in South America and burdensome supply domestically, it will likely take more than just one round of explosive demand numbers to sustain any kind of rally.
Soybeans got caught up in the slipstream of the corn rally early on in the session, but faded late when it slammed into short-term resistance levels to close well off the highs at $12.75/bushel for the March contract. Old-crop contracts continue to battle against a record export pace that has some concerned will put the pinch on domestic supplies if the pattern continues.