Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Spot cheese continues to creep higher, and perhaps part of the reason futures traders aren’t “buying” into it, literally or figuratively, is because the barrels have pushed above the block valuation and market participants are not seeing that as sustainable. The market feels lethargic. Expect choppy finish to the weak if volume continues quiet. Even the corn price has failed to assist milk in rallying, as grain prices correct a bit from recent highs amidst the Goldman Sachs & Co. recommendation to take profits on longs.
Slaughter came in at 56,100 this week up 7.1% from year ago and up 9.2% from last year, and milk-producing weather around the country is darn near perfect this morning. Still, there was little in the way of fresh news to stir up much trading activity lately.
Cash cheese futures saw 21 trades which, although light, is a pick up from recent days, such as e Wednesday when we saw just seven contracts change hands.
Weekly Grain Export Sales:
Corn: 43.4 million bushels vs. expectations for 21.7 to 35.4
Soybeans: 2.9 million bushels vs. expectations for 7.3 to 12.9
Wheat: 20.0 million bushels vs. expectations for 14.7 to 25.7
Soybean meal: 171.6 thousand tones vs. expectations for 100 to 400
Stronger export sales helped to prop prices up for a short time early in the day before softer outside markets dragged things down double digits early.
With corn prices now surpassing wheat and talk that worldwide wheat production could recover in the coming year, the competition between corn and wheat should heat up in terms of feed. Typically, that spread is wheat a dollar over corn, but they are currently inverted. There is still a lot of time remaining in the crop year, but perhaps this is a chink in the corn armor and a move toward a decreased wheat carryout, while corn could maintain something nearer 600 million bushels instead of the 450 to 550 many analysts predicted after the strong Q1 disappearance. We still have a hard time convincing anyone that USDA’s estimates in the April report were valid, but this is a step in that direction.
Overnight, the market continued to be under price assault. This appears to be a correction with some room to run as money becomes less risk averse and extremely profitable spec longs look to line their pockets with recent riches before they disappear. Goldman made the profit-taking recommendation earlier this week and to us that means they started selling weeks ago. Another article of similar ilk arrived this morning. Now, others are following the leader. http://www.bloomberg.com/news/2011-04-15/goldman-sachs-says-underweight-on-commodities-for-3-6-months.html?cmpid=yhoo