Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
We’ve often said that markets tend to drop three times faster than they rise, and the CME spot market was no exception to this tale.
The spot market had an incredible day on Friday, waking up after a quiet week, trading down 16 ½ in the barrels with 11 trades and down 14 in the blocks, with no trades. This was dramatic action, with obvious excess product needing to be moved. And while the one day losses were staggering, they were not necessarily unexpected.
This move sent the futures straight down, with April being hit the hardest —- limit down for most of the day. Specifically, 955 contracts were traded in May, with the price getting as low as $14.72 but settling down only 10 cents to $15.11. The April through June 3 month pack settled at $15.41 down 27 cents on Friday and down 32 cents on the week, while the July to December pack average was down 16 cents from the previous week to $16.44. Total volume was 2,276 on the day as prices from June through 2013 settled mixed from -17 to +7. Open Interest left much to be desired, however, jumping only 201 contracts amid what appeared to be good commercial hedge buy interest.
The spot market has made its expected lower move, earlier than we expected. However, we believe that both Class III and cheese futures have priced in the losses on spot so far. If we trade down cash down from here, more futures weakness is likely in store. Otherwise, we look for a lower opening this morning followed by a more choppy, consolidation type trade for the time being. We look for Class III to open steady to lower.
Grains finished out the week on a higher note Friday as corn futures closed up 2 cents at 646.5 with the weakness in the U.S. dollar and following the surge in soybeans, which closed up 16.25 cents at 1365.75.
There were significant losses early in the week as the corn market moved back well within its two-month range as once again an upside breakout failed to materialize. The market remains somewhat a mystery in the short term as the balancing of old crop tightness with potentially large new crop carryout for corn and a stable old crop bean situation, meshed with a very tight new crop balance table, is sending very mixed signals to the market. If the drop should continue early this week on futures, we’d recommend getting some short-term protection on both grains in advance of the planting estimates and quarter-ending stock estimates.
We look for corn to open steady to 4 cents lower and for beans to open stronger up 7 to 11 cents.
Daily CME spot market prices:
Block cheese $1.495 (down 14 cents)
Barrel cheese $1.46 (down 16.5 cents)
Butter: $1.5225 (unchanged)
Grade A NFDM: $1.2675 (unchanged)
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