Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Early on yesterday, weaker overnight prices quickly turned the corner and moved mostly higher even before the spot session opened and we entered spot mixed but mostly higher. Then, a massive amount of block trades occurred, surpassing even Monday’s very active session with 27 trades as prices were briefly higher by a ¼ of a cent before settling unchanged. The inverse to barrels began, as the barrels fell by 4.5 cents on four trades. All of the buying led to futures traders aggressively doing the same, ultimately pushing prices up 14 to 53 cents from April to September.
With the large gains in futures, it seems more and more indications are out there that the milk market is bullish, and seemingly all we need is for the spot market to turn the corner. Our expectation is that will likely happen, if not later today sometime early next week. It seems even with our increasing supply and reduced fluid consumption, we are unable to keep up with the demand for now.
The Livestock Slaughter report from USDA was issued this morning, showing 249,000 dairy cows were slaughtered in February — up 26,000 from the same month a year ago. Slaughter this last week was 58,900 and, with higher feed and beef prices early this year, we have maintained a double-digit higher pace vs. last year with total slaughter up 10.4 percent over the same period of 2010.
We may stagnate with spot cheese selling coming to the market in a big way, but this certainly makes us even a bit more bullish for the summer months, as it looks like cheese is bottoming.
Grains looked like they would come under pressure again today as soybeans had not only disappointing export sales, but also saw a disappointing crush number, leaving us lagging 7 percent behind last year compared to the USDA’s estimated drop of 5.5 percent. (Table of estimates and results included below.) However, after a brief turn to the downside, early prices firmed throughout the session with continued rumors of Chinese buying and Gulf basis values firming sharply.
Though it usually flies under the radar due to the planting intentions report, we will also have the stocks report on March 31 which will be very closely watched as well.
We don’t expect major movements in price ahead of next Thursday’s report, but a trend could develop with still four sessions to go. We’d expect to see options volatility recover some of their recent losses leading into the report, as traders look to buy out of the money options in hopes of a big move in either direction following the report.