Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O’Neill in Chicago, Ill.
Class III futures quietly slid lower Thursday on a rising, but still moderate, 1,024 contracts of trading volume. The market, which ran into some short-term technical resistance on Wednesday, succumbed to the selling pressure after the spot market left blocks unchanged and barrels up a penny to close the spread to 3.5 cents. Therein lays the trading conundrum: was this week’s move on spot cheese reflective of some new demand pushing prices higher – or was it simply the result of a more price corrective trade for the block/barrel spread? For now, our estimation sides with the latter as ample fresh cheese supplies continue to meet ho-hum demand. This story may change in the next 30 to 45 days, but we expect spot prices to cool a bit here today as stability has been reached for now.
If spot stability keeps prices in the mid-$1.60’s for the next several days, we expect both Class III and cheese futures to continue the downward momentum that developed during yesterday’s trade as some of the premium built into futures is whittled away. Current March to June futures are pegging prices at just north of $1.75. Not unreasonable, but perhaps a bit lofty under quiet, post super-bowl conditions.
One area that continues to garner some attention is the hot, dry weather in New Zealand. While it hasn’t ruined their record production so far, it has the ability to shut down their banner year early just as export demand is expected to resume for the second quarter. International prices may be telling that story right now as reported Oceania prices are in direct opposition to Western European prices.
Spot session results:
Block cheese: $1.675 (unchanged)
Barrel cheese $1.64 (up 1 cent)
Grade A NFDM: $1.505 (down 0.75 cent)
Butter: $1.6025 (up 1.5 cent)
Corn futures continue to find it a slippery slope this week, barely grasping onto any intra-day price gains. Soybeans, too, are facing a similar fate in a cloudy mixture of largely benign harvest weather in South America and weak technical conditions. However, we expect the confluence of improving ethanol margins and news some idled plants are planned to come back online as early as next week and the fact that Asia will be returning from holiday to play into a resumption of trading volume and potentially a bearish price bounce ahead of the March option expiry on Friday, Feb. 15. Not to mention that the drought situation is an underpinning feature for these markets now and for some time to come.