Dairy markets: Grains collapse; butter skyrockets

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Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill. 

Class III futures downside momentum continued yesterday. The Q3 2014 pack averaged $21.18/cwt., down 12¢ on the day. The bull market now seems to be turning over, or at least resting. With this being a shortened holiday week, it will be increasingly more difficult to get a clear picture on the market as we move on. It may be a case of take what you can get this week, and look to do some more analysis when traders come back to the market after the holiday.  

Spot Cheese threw a couple of surprises at the market yesterday, leaving us with an inverted spot market again. With GDT out tomorrow and Dairy Products out on Thursday, (with a shortened trading day) we will be looking to those reports for more direction. Any meaningful uptick in production could ultimately bring this side of the market place down in a hurry. 

What do we say about butter, except for “when does this train stop?” An active spot session that gained another 11 cents yesterday, putting spot prices at $2.50/lb. That is the highest level seen since 1998, when we traded butter at $2.81/lb., and then quickly saw prices collapse into the mid $1.40s. Continued tightness and lack of product in storage will continue to be fundamentally supportive as we move through the summer months. The cry for exports doesn’t seem to be waning either, as domestic processors continue to manufacture.                                               .

 

June 30 spot session results:

Block cheese: $2.0000 (down 2.0¢)

Barrel cheese: $2.0500 (unchanged)

Grade A NFDM: $1.8075 (down 2.5¢)

Butter: $2.5000 (up 11.0¢)

 

Today's expectations:

• Class III, Cheese & Dry Whey to open firm

• NFDM to open steady

• Class IV to open mixed

• Butter to open higher

 

Grain futures

USDA put out the most bearish grain report that we have had in years. Outside of some natural disaster, we are going to have some of the lowest grain prices we have had in years. There is some time to go before harvest, but from yesterday’s reaction and expected follow-through today, we could see corn prices at  levels not seen since 2010.

The big takeaway from the report for soybeans was that they found an additional 2 million acres planted, sending a shudder through the marketplace. We will have to wait to see where we end up with this market, because there is no real support until we hit $11.25/bushel on the November contract.

 

Today’s expectation:

• Grains to open soft following yesterday's price collapse

 

FC Stone's annual two-day Dairy Outlook Conference begins today in Chicago. Visit www.intlfcstone.com/events for information.

 

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