Class III outlook bearish

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Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

Class III futures closed out the week mixed, but mostly lower on a total of 946 trades, with settlement prices ranging from unchanged to down 40 cents in July. A majority of the trading action ― 87 percent of total volume ― was contained in the June through August months. The June to August futures pack lost 23 cents on the day to settle at $15.78, a 35-cent decrease from the same period last week. Class III futures fell hard after the results of the spot session, which saw the spread between blocks and barrels widen to 11.75 cents. The trade seemed more concerned with the barrel cheese price than with block Friday. Though blocks pushed 3 cents higher to $1.65, barrels also pushed higher earlier in the session, traded and closed down 0.25 cents on offers. 

The Class III market has been forced to contend with a gloomy international economic outlook, as issues within the European Union continue to rattle markets. Coupled with the prospect of an influx of fluid milk as schools close for summer vacation, the Class III outlook looks bearish with furthering selling in the coming sessions. 

On Thursday, the Department of Agriculture released its preliminary milk-feed ratio for the month of May at 1.38. This number is the lowest on record, which goes back to 1985, as dairy producers contend with high feed costs in the face of lower milk prices.

Australia’s milk production was reported at up 7.7 percent from the same period last year. This puts Australia’s total milk production up 4.3 percent for the first 10 months of the 2011/2012 season over the same period last year. Australian dairy producers have concentrated more on cheese and whey production, with cheese production up 4.3 percent and whey production up 7.7 percent from last season. WMP production has fallen by the wayside there, dropping 5.7 percent from last season. 

The Dairy Products Report for the month of April was released last Friday. Total cheese production was 902.6 million pounds, up 2.1 percent over the same period last year, but down 1.5 percent from March’s production level. American cheese production totaled 372.0 million lbs, up 0.5 percent over March and up 3.5 percent over last year. Mozzarella production fell 2.1 percent from March to a total of 299.5 million pounds. The report looks slightly bullish for the cheese market, and the drop in cheese production rate may translate into a bullish drop in whey production as well.

Cheese futures took their cue from the Class III session, mimicking price moves throughout the day on 189 total trades. The futures settled mixed, with prices ranging from down 2.3 cents to up .3 cents. As with the Class III, the heavy losses were experienced in the July and August contract which fell 2.3 and 1.7 cents, respectively. The July contract has fallen 3.7 cents since the Friday prior, closing out at $1.608. The August contract has fared worse, losing 4.2 cents over the week to settle at $1.618. The slightly bearish nature of the Dairy Products Report should give the market bears something to consider this week, but the current overall outlook looks bearish for the time being.  

Corn had an interesting trade Friday, capping off the week of what looks to be a speculative weather trade in the grain complex for weeks to come. After trading up in the morning and through the open, corn futures were chopping until around 10 a.m. when they began to reverse direction. We are at an interesting crossroads: fundamentals vs. macro-economic concerns; which will win out?  We suspect the outside markets will continue to weigh and the weather reports will sway back and forth meaning we will chop violently. If Europe gives some short-term solutions, then the outside markets could bounce and bolster grain prices, which are currently looking for more moisture. 

Our advice for corn buyers is to cover summer feed needs ahead of pollination.

We look for corn to open 8 to 10 cents higher as the U.S. dollar is softer and weather concerns loom once again. We look for beans to open mixed.

Daily CME spot market prices:

Block cheese: $1.65 (up 3 cents)

Barrel cheese $1.5325 (down 0.25 cent)

Butter: $1.40 (unchanged)  

Grade A NFDM: $1.185 (up 1.25 cent)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.

 

 

 


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