Dairy markets: Where do we go from here?

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

Class III markets were mixed yesterday. The July through December 2014 Class III pack is currently trading at $19.95/cwt., off its May high of $20.30/cwt. set only a week ago. So, where do we go from here?

We think the mid-$1.90s/lb. is a balanced cheese price, with potential for more downside, even in light of yesterday’s uptick in the price of block cheese. As the end of the school year nears and production ramps up a bit in the Midwest, we should expect more milk to go into cheese.  However, we are not expecting a wall of milk.  While we are hearing that demand is steady, and buyers are figuring options in light of expected price increases moving forward.  Overall, little has changed fundamentally from a domestic perspective. While parts of California have seen some heat, most of the country is seeing temperatures at or near normal levels.  In the short term we should see some choppy trade as traders keep a watchful eye on weather and the international markets.

We expect to seek mixed to lower results in today's GDT announcement. Europe is flush with milk, and the weather situation in New Zealand seems favorable, for now. 

Butter futures were mixed yesterday.  The spot market is highly active in the $2.25-$2.30/lb. range, which in our estimation looks more toppy than bullish.  Market tops are generally highly volatile.  Fundamentals remain supportive.  Ice cream demand, which has been really good so far this year, is expected to stay strong or grow as temperatures warm. 

 We are hearing that NFDM production is steady, but demand generally remains sluggish this week. Class IV, which has been slowly losing some of last week’s gains over the past few trading sessions is expected to trade lower today as well..

 

June 2 spot session results:

Block cheese: $1.9625 (up 0.25¢)

Barrel cheese: $1.9325 (unchanged)

Grade A NFDM: $1.8450 (unchanged)

Butter: $2.2800 (down 2.0¢)

 

Today's expectations:

• Class III & Cheese to open slightly higher

• Dry Whey to open mixed

• Class IV & Butter to open steady to lower

• NFDM to open steady

 

Grain futures

Corn futures settled slightly lower. There are now less than 2.0 million acres of unplanted corn – down 5.2 million acres from last week.  Overall, there is not much in the way of bullish fundamental news to prop up corn prices at this time.  However, we have a lot of growing season left, so while we’ve put the planting worries to bed, we’re still in the midst of a weather market for growing the crop. End-users ought to look at call options protection in this environment.

Soybean plantings beat market expectations as 78% of the crop is now planted vs. 70% expected.  Soybeans are slightly oversold in the short term and could see a bit of a bounce here as well, although the corn market’s technical deterioration is more pronounced at this time.  Soybeans have little in the way of bullish fundamental news to go on, so more downside is expected for beans and bean meal, even in light of what could be a technical bounce in corn. 

Today’s expectation:

• Corn to open lower

• Soybeans to open lower

 

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

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