Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Class III and cheese posted firming futures prices on moderate volume Tuesday after having shrugged off the most recent bearish USDA milk production numbers. The market is focused on well-supported spot prices. We continue to hear that cheese is snug in the Midwest and even aged product (particularly barrels) remain rather tight. Ot West there seems to be more availability. However, the butter price movement seems to be keeping sellers of cheese at bay.
Meanwhile, USDA’s release of June’s Cold Storage data yesterday afternoon gave Class III and cheese futures a boost overnight. Although we’re still sitting on over 1 billion lbs. of cheese, drawdowns of American cheese stocks in June were healthier than expected. The futures market didn’t respond yesterday afternoon, but pushed 5-26¢ higher in the overnight session. Dry whey continued to decline under moderate price pressure. We expect more of a mixed trade today as the sell side doesn’t appear too aggressive right now. But dry whey participants are likely more focused on the weakness in the NFDM market right now. Further weakness in NFDM, and $2.58/lb. butter leads us to the conclusion that those who can will shift some increased level of production to the more stable cheese vat, which would increase dry whey production as well.
Like a kid scoring the winning touchdown in the pee-wee football league who keeps running past the end zone, off the field and down the neighboring street, the butter price is all by itself. Cream has been tight for months and continues to be tight, which is one key component to the spot butter strength. The difference this week is that sellers have stepped to the side, so there have been no trades this week. We do not know when the sellers will step back in, but when they do we don’t expect many loads to exchange hands before butter corrects downward. The Cold Storage Report showed butter stocks decline less than we anticipated, the butter market is probably not driven by USDA reports right now. This is an emotionally fueled market operating on current issues and not aged data.
While butter continues its climb, NFDM futures continued to slide lower. Spot NFDM found some stability, but still seems like a serious older brother waiting for a sibling to stop goofing around at this point. Still we see some level of commercial buy interest on futures as weakness has materialized there this week. But overall, demand for NFDM remains soft today and such a counter-tone to the market ought to provide some headwind to the class IV market.