Dairy markets choppy, sideways and looking for direction

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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 kept with the negative trend in the nearby months as prices slid in the first half, while the second half of 2012 was able to muster some slight gains on a total of just 918 trades. The spot market was mostly quiet, but a ¼ cent drop in the block after a trade took place at unchanged left the market a bit softer. Prices dropped between 13 and 24 cents for the rest of the first half. A total of 522 trades took place in the second-quarter months, with a solid 390 contracts traded in April nearly half of the total daily volume. Open interest was up slightly across the board; the lion’s share of new positions were in April. 

Heavy milk production continues to weigh on market sentiment when bullish news becomes sparse, which is frequently. The second half pack lost just two cents to settle at $16.48, nearly a dollar above the second quarter. 

Look for a choppy trade to continue here today as we zigzag between technical support and resistance with little to push us decisively one way or the other for now. Producers who are looking for protection would be advised to own put options (floor price) but refrain from selling futures or forward contracts too aggressively at these levels. Commercial buyers appear still interested in owning both cheese and Class III futures and appear willing to buy price weakness.  There may be a time when selling more aggressively is in order, but tread lightly today. 

The grains markets took a hit yesterday, as the beans, corn, and wheat all traded lower in front of Friday’s upcoming reports. The wheat market lead the way lower on rising crop ratings, as the May contract fell 19 ¾ cents to $6.39 3/4. The technically overbought May soybeans dropped 9 ¾ cents to close out at 13.69 ¾. Interestingly, May corn, which has been the weakest market, proved the most resilient yesterday losing just 7 cents to settle at $6.30 ¾. All eyes are focused on the results of the upcoming reports to provide some sense of direction, as the grain markets have been within a choppy to sideways trade of late. Look for the report estimates in tomorrow’s morning commentary.      

We look for corn to open mixed from -2 to +2 cents and soybeans to open 4 to 7 higher.

Daily CME spot market prices:

Block cheese $1.49 (down 0.25 cent)

Barrel cheese $1.46 (unchanged)

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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