Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
More than 1,000 contracts traded in Class III futures yesterday as prices were once again under attack, dropping as much as 38 cents. The cheese market continues to be under pressure. Block and barrel cheese prices were down 1 ¾ and 2 cents, respectively. Prices failed to draw out the buyers that we saw last week, suggesting that buyers have either satisfied their needs or are waiting for even lower prices, which is historically the case. Either way, the activity and prices are suggesting a higher probability for lower prices than higher ones at least in the short/medium term.
Some of the weakness in both cheese prices, as well as Class III, may be because of fear that fluid demand could drop as a result of the radiation levels found in milk over the past few weeks. Even though the levels are well below harmful levels, perception is like possession — 9/10 of the law. If the average consumer of fluid milk cuts down on fluid consumption out of fear and or perception, even a slight loss of demand could have a significant effect on the supply side of the equation.
That extra supply would likely make its way into products like cheese, butter and NFDM. That could be why we are seeing some pressure over the past few weeks. Not the only reason, but nonetheless it could be a contributing factor that is drawing out some of the sellers. Overnight trading pressured Class III prices lower following yesterday’s loss in value.
We look for weak Class III open and for spot to be steady to lower.
Grain markets surged again Monday after last week’s bullish reports. Corn futures prices were driven to within inches of 2008 highs on U.S. weather concerns, strong energy prices, a brow-beaten U.S. dollar, Brazilian harvest concerns, dry Chinese wheat uncertainties, and the corresponding, keep-you-up-at-night worry from end-users who are watching prices ratchet higher rapidly.
Talk has shifted to $9 and $10 per bushel corn over the past few sessions, since the stocks report came out last Thursday. While stocks are tight enough to produce these types of record prices, we would be remiss if we did not point out that the talk is nearly always for new record highs when markets get red hot, as corn has done over the past few days. Recall, if you will, the siren song of $30 milk back in 2008. These claims came a few months ahead of the sharpest decline in milk’s pricing history.
We don’t know when or where buyers will take their ball and go home, but — if history is any guide — markets will often print their peaks when so many bullish factors are colliding at the same time. We’re still weeks away from putting the crop in the ground, and it will take a week or so to get a handle on any damage done to demand. We want to let the market calm from its near-dollar rally inside of three trading days.
End-users of corn ought to hold-off on buying these lofty levels and instead wait for a corrective, dust-settling trade. If you will wait to buy feed needs, we advise buying a safety net of put options below.
This morning, we look for corn to open 4 to 6 cents lower and beans to open 8 to 12 cents lower.