Dairy markets consolidate

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Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

At the close Friday, milk was lower, as it was on the week. April-June ended the week at $16.98 vs. $17.04 on 4/8/11. We are clearly consolidating. Sellers ate through a lot of inventory and buyers bought a lot of needed product; everyone needed to cool off, reset and reevaluate, which is yielding consolidation. We look for more of that theme this week as Passover starts Monday evening; the exchange is closed for Good Friday and next week is both Easter and ADPI.

The Russian Government may increase import duties on both cheese and butter. Russia has a policy that 90 percent of its dairy consumption should be domestically produced, and it aims to protect that amidst growing product levels moving from EU nations into Russia. In January and February, Russia was the second-biggest market in SMP and largest for butter and cheese for EU nations, which equaled about 33k MT of cheese and 5k MT of butter for Jan and Feb.

Today, we look for a light volume, mixed open to the Class III market.

The grains, corn above all, are in the midst of a corrective trade. Money is moving out. Goldman is calling for a short-term (up to three-month) correction in price in what they call a longer-term (12-month) bull market. 

Nonetheless, prices settled last Friday beneath or at technical support depending who’s “exact” number you use. The fight is on. The fundamentals have not shifted. China will likely continue to raise interest rates because of food price increases, but their food needs will not diminish. There is talk of changes to the ethanol subsidies and even mandate, but we view this is nothing more than talk at this point. But, keep in mind, at these loft price levels, longs in the market are nervous and highly susceptible to panic (selling).

Every animal, like bulls, need to breathe. Today’s close will be pivotal to see if support holds or not. Overnight was very weak form the start and then well off its lows after not too long. By the morning, prices had neared unchanged in a sign of resistance to the sell side pressure.

We look for corn to open 1 to 2 lower and beans steady to 1 lower.

Weekly CME spot market price averages (for week ending April 15):

Block cheese:  $1.6220 (up 4.25 cents)  

Barrel cheese:  $1.5970 (up 6.75 cents) 

Butter:  $1.9895 (up 1.8 cents) 

Grade A NFDM:  $1.6480 (down 2.4 cents)  

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.

Source:  FCStone/Downes-O'Neill



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