Dairy buoyant in face of bearish news

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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 prices once again traded to the downside ahead of the spot market today; however, the GDT prices falling sharply on cheddar and the milk production report helped to encourage the movement. Softer dry whey prices also had a hand in the weakness early, but then came the much-anticipated spot market on the heels of a strong milk production report. The spot market saw the first trade occur since March 7, as a load of barrels traded, but at the close both the blocks and barrels had risen two cents and closed above the $1.60 mark and finished with bids remaining on the board.

Despite all the other bearish influences, Class III attempted to bounce back with March and April closing higher, but the spring and summer months still under some pressure. At settlement, May through August closed 6 to 18 lower as volume was a bit firmer than Monday just clearing 1k contracts.  Six to 18 lower is a resilient finish to a market that hours earlier looked as though it could have been limit-down.

In talking with market participants, it seems that cheese is “stable” to “tight” right now and this may persist through month-end. The belief remains that this is simply a short-term move on the spot market and prices will resume their downtrend in short order. There is also a continued fear that prices will ultimately go far lower than we’ve already seen on the futures board (two weeks ago) in the coming months following the very soft GDT pricing announcement and seemingly no end to the increased milk supply. To that end, New Zealand milk production was announced up 10.3% from 2011 in January with estimates for full season production to be at least 8% above 2011.  But those bearish thoughts are quelled somewhat by the market’s desire to focus more intently the current fresh cheese supply situation.

Grain futures were under pressure from the get go this morning as nice rains were falling in the SW corn belt and are projected for the majority of the corn belt later in the week. Fund selling was extremely heavy on the day, with an estimated 15k sold in corn on the day. Wheat was also under pressure from fund selling, with an estimated 3k sold. The fear of a Chinese economic slowdown helped to pressure the general markets and weighed upon the grains, as well, both as crude oil prices slipped and the prospects of export sales slipped. The market continues to struggle mightily with old crop tightness and likely projection of a very large new crop carryout on corn, while simultaneously trying to manage a soybean carryout that will remain very tight into next year. Overnight, the markets were slightly in the green with the U.S. dollar trading slightly lower.

Daily CME spot market prices:

Block cheese $1.6025 (up 2 cents)

Barrel cheese $1.6125 (up 3 cents)

Butter:  $1.5225 (unchanged)  

Grade A NFDM: $1.2675 (unchanged)

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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