Supply/demand grapple, leaving dairy markets restless

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

We switched gears in Class III and cheese futures from low-volume price rises, high-volume price declines to just plain old low volume. As a result, the price changes are being exacerbated as we swing around somewhat range-bound. Ranges are broken, low volumes are the calm before the storm and, given the glut of milk we have around the world, we suspect the range will be broken to the downside when a big breakout comes.

In the meantime, the Q2 pack has seen two violent days with a 20-cent drop, followed by a 29-cent increase, all with no major change to spot pricing. There is no real rhyme or reason to this type of activity outside of a choppy trade between technical support and resistance levels. Look for more of that to continue and we watch for some technical indication of direction. 

Weekly cold storage held no major surprises on cheese, as stocks declined for the second consecutive week by 0.3 percent, but still up 5.6 percent on the year. Commercial disappearance just out showed more cheese consumption, but this should be no shock as we simply have more production; the increase in consumption is still outpaced by production. Recent talk we have heard of the early grilling season causing more cheese consumption doesn’t really hold water when you consider the beef disappearance hasn’t reflected this.

Another day and another break in the grain market... Pressure remains as fund selling is heavy with profit-taking ahead of the report tomorrow morning and the continued technical weakness. Corn settled down 10.5 cents at 620.25 in May and down 14 to 536.25 in December yesterday, while beans were down 2.25 at 1367.5 in May and down 7.25 cents to 1320.5 in November and wheat dropped 9 cents to 630.75. With the significant sell-off and heavy longer-term support just below the market now at $6.00 and then $5.80 in May, we suggest end-users should look at booking 4 to 6 weeks of usage ahead of the report, as it seems to us there is now real concern that tomorrow’s report could be bullish due to the recent pullback. Let’s put it this way: it will have to be bullish for prices to rise from the deteriorating technical condition. 

This morning, we look for corn to open 2 to 6 cents lower and soybeans to open 1 to 3 higher.

Daily CME spot market prices:

Block cheese $1.49 (unchanged)

Barrel cheese $1.46 (unchanged)

Butter:  $1.505 (down 1.75 cents)  

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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