Editor’s note: This market commentary is provided by Dave Kurzawski a risk-management consultant with FC Stone/Downes-O’Neill, Chicago, Ill.
A colossal winter storm has pushed across the nation’s heartland over the past 24 hours dropping temperatures along with ice, snow and wind and sometimes all three from Texas to Wisconsin. Closer to home, Chicago is under lockdown today as O’Hare and Midway cancelled flights, frozen signals are delaying the intricate weave of the Metra Railway system and the weather service has issued an exhausted plea for motorists to just stay off the road. Chicago’s famed Lake Shore Drive was closed due to the potential for 25 foot Lake Michigan waves to trip the breaker wall and produce the world’s largest ice rink. We’re looking at about two-feet of snow here. It is a true winter wonderland.
Due to the weather, the CME has issued a ‘delayed open’ for open outcry trading floors in Chicago to 10AM central time. But the electronic markets are open and we’re in the office (those who could make it).
Class III and butter traded firm yesterday early and buying worry was palpable after strong Fonterra gDT auction numbers set the tone. Skim milk powder, whole milk powder and anhydrous milk fat prices were all up sharply albeit on reduced volumes. But the CME spot sessions were quieter – at least for those who expected more of a driving move to the upside for cheese. Class III futures retreated quickly into negative territory after a mostly stable CME cash markets but found support and buyers resiliently bid prices – particularly in the March to June time period - back up by the close of business.
There is no question that NFDM and dry whey have been tight and the primary driver behind January’s rally. Class III and cheese fundamentals have put on the back-burner – or ignored entirely – the continued bearish reports that we get here on U.S. soil. The USDA dairy products report released yesterday gives more pause for the dichotomy of our dairy markets. While butter and NFDM production rose, we are operating from a lower point of overall inventory keeping the picture for those products tight globally.
On the flip side, American Cheese production was up 4.9 percent in December (new record for December production) while Total Cheese produced rose by 6.7 percent or over 900 million pounds (all-time record cheese production for a single month). Anyway you cut it, these are bearish figures. But the market can trend and move how it wants to and we’re seeing that today. And with the Cooperatives Working Together (CWT) program continuing to move U.S. cheese overseas in January (a whopping 4.5 million pounds), tightness in fresh cheese here today seems more plausible. Still, the mid-$1.70’s have proven to be a formidable area of resistance in both December of 2009 and October of 2010 and it may again serve as a pricing shut-off valve for demand.