Dairy markets: ’If it's not bearish, it’s bullish’

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

 

All the hallmarks of a market starving for fundamental news were demonstrated by the Class III trade yesterday. Initially, nearby futures probed into higher territory in anticipation of a possible catalyst in the spot session and tested a breakout through trend line resistance. However, upside momentum ran out of gas and stalled back into consolidating action when direction in the cash market failed to materialize. The 2H 2014 pack average continues to hover near the $20.00/cwt.; the 4Q 2014 pack settled at $19.53/cwt.

At this point, the cheese market is leaving more questions on the table than answers. Volume has been tepid, ranges have been tight, and the spot market is straddling the $2.00/lb. level. The volatility has been sucked out of this market after violently ripping through it like a hurricane. How long can this persist? It’s a question that’s been fielded quite a bit lately as market participants are growing antsy. The answer is simple, the market will move when there is a reason for it to move.

Domestically, we are past peak production and supplies are tight on a relative scale. An argument could be made that bullish tones remain in this market, as it has weathered prolonged weakening of international prices without losing competitiveness and without having the bottom drop out of the futures market. The old adage, “if it’s not bearish…it’s bullish”, may apply here. That said, producer margin levels are still at historically attractive levels, and if downside price action is a concern, it is still advisable to put protection levels in place.

 

June 10 spot session results:

Block cheese: $2.06 (unchanged)

Barrel cheese: $1.9725 (down 0.25¢)

Grade A NFDM: $1.8575 (unchanged)

Butter: $2.21 (unchanged)

 

Today's expectations:

• Class III, Cheese & Dry Whey to open steady

• Class IV & Butter to open soft

• NDFM to open steady

 

Grain futures

The grains continued to trade in consolidation mode ahead of the World Ag Supply & Demand Estimates report. The corn market was pressured again yesterday and closed red across the board. There was news China will cease to issue import permits for US DDG after the disputed GMO strain MIR-162 was discovered in a recent shipment. The soybean market managed to make small gains.

 

Today’s expectation:

• Corn to open slightly higher

• Soybeans to open mixed

 

FC Stone's annual Dairy Outlook Conference will be held June 18-19, in Chicago. Visit www.intlfcstone.com/events for information.

 

The trading of derivatives such as futures, options, and swaps may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Any reference to past performance is not indicative of future results. All references to futures/options trading are made solely on behalf of FCStone, LLC. All references to swap execution and bi-lateral swaps are made solely on behalf of INTL Hanley, LLC. FCStone, LLC will clear swaps when applicable. Swaps are only available to eligible counterparties. All observations of economic, political and/or market conditions are not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. and its subsidiaries and should be construed as market commentary. All recommendations to buy or sell a specific derivative or forecasting statements regarding market activity and the pricing thereof should be construed as a solicitation in any jurisdiction in where such an offer or solicitation would be legal. Proper context and guidance including but not limited to the particular trading objectives, financial situations and the needs of the intended audience were taken into consideration when this recommendation was prepared. Contact your account representative for specific advice to meet your specific trading preferences or goals. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. and its subsidiaries. Sources of information believed to reliable were used in preparing such observations, and no guarantee or representation regarding the accuracy of those sources has been made. INTL FCStone Inc. and its subsidiaries are not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material.


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