Dairy markets: Class III futures ‘explosive’

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

Explosive.

In one word, that pretty much sums up the aggressive upswing in the Class III futures market over the past couple of days, with most contracts soaring to fresh highs in the midst of softer spot sessions. While blocks and barrels traded lower, futures shrugged it off and went nuclear.

We have been clear that it would take more than a modest uptick in production to warrant price breaks, and it appears that is part of what the market is factoring in here. California production came on strong and early in 2014, while the Midwest lagged. Now the inverse is playing out, with Midwestern production on the rise and California trending lower. The point is there hasn’t been a concurrent uptick in production that would’ve yielded strong results.

The dry whey side of things has added fuel to the fire. With cash transactions around the country coming in at around 70 cents per pound, futures have traded firm and rallied to close that gap.

Another contributing factor to the strong price action is the slightly bullish skew for cheese: surplus milk that was being diverted from Class IV back into Class III has now found its way back to the powder side, a contributing factor to lackluster cheese production.

Class IV futures extended its two-day rally. Taking its cue from the spot butter market, the Class IV market has clearly been awakened from its recent snooze.

Following a flat spot session that left Grade A at $1.7875, NFDM futures rallied up. As international prices soften and domestic inventory builds, prices could very well be headed lower. Look for the trade to trend sideways to lower from these levels.     

 

May 1 spot session results:

Block cheese: $2.1000 (down 3.25¢)

Barrel cheese: $2.1000 (down 3.0¢)

Grade A NFDM: $1.7875 (unchanged)

Butter: $2.0025 (up 5.25¢)

 

Today's expectations:

• Class III & Cheese to open steady to lower

• Dry Whey to open steady

• Class IV, Butter & NFDM to open mixed 

 

Grain futures

Grains all traded in a sea of red as funds let go of some of their long positions, weather forecasts have improved and news of soybean cancellations rippled through the trade.

 

Today’s expectation:

• Grain complex to open higher

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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