Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Class III continued its climb higher yesterday, building on Tuesday’s gains. The price increases picked up momentum after the spot session and fly in the face of the fundamental outlook for the complex. Price changes ranged from unchanged in March to up 37 cents in April. A similar pattern developed in the Class III as some of the other dairy products, as a majority of the volume and price gains was contained within the April to June months. Specifically, 1224 of the 1542 contracts traded were exchanged in the April through June months, as the pack gained 36 cents to settle at $15.89.
Though milk supplies remain abundant through steady increased production, the gains in the spot cheese markets have traders rethinking the extent of their bearish outlook, if only temporarily. Neither spot market was able to register a single trade, but the bids were able to push prices higher. The barrels increased $0.0125 to settle at $1.6250, as the blocks leapt $0.0325 to settle at $1.6325. When cooler heads prevail, both the spot and Class III markets should fall back in line with the negative fundamentals that plague these markets. We may still be a week or two away from that. It is interesting to note that once again as prices rose, open interest fell and if you remove the OI increase March saw then OI fell even more for the complex — not a supportive sign.
Grain futures were mixed yesterday, as supportive news bolstered the soybeans, while the corn and wheat continued to lose value. All in all, it appears as though the bull is losing some steam for the time being. The May beans settled ten cents higher at $13.55 on news of Chinese demand and acreage needs. The May corn was able to hold above the 100-day moving average at $6.39, closing down 5.5 cents at $6.42. The corn needs to hold above this moving average to avoid another round of technical selling. On-farm inventories are keeping basis tight, but farmers only have a few months to hold those inventories and they need a bounce to sell into or they risk losing substantial premium based on the inverted corn futures market. Yesterday, May wheat followed corn, dropping 6.25 cents to settle at $6.36 ¼. Ideal weather conditions leading to early plantings weigh on the markets at this time, but any significant weather event would turn the grains sharply higher in a short period of time.