Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Class III futures were mainly higher yesterday, as the spot cheese market remained steady after pushing fresh lows last Friday. Class III settled unchanged to 20¢ higher through 2015 on light volume. The lighter, holiday volume ought not to be totally dismissed, even when considering continued bearish news. Markets often begin corrections quietly and with little regard for market opinion. Class III contracts are up as much as 27¢ overnight, and the January-December pack average is up 14¢, to $15.99/cwt.
We find bearish arguments and outlooks more compelling, and don’t see that changing next month. We know milk production is strong globally and in the U.S. We know that demand – although intact domestically – is not what it was a year ago (or even a few months ago). We know imports are rising. Most signs point towards weaker pricing from current levels – not higher prices. That does not mean, however, that a bear bounce or a futures market correction cannot occur. And we expect this is beginning. The question will then become, is it a correction or is it something more?
Dry whey settled steady/mixed yesterday. The Q1 2015 pack is currently trading at 47.233¢/lb., up nearly 6¢ from its Dec. 16 low. Look for more of mixed trade at current levels for dry whey today.
Butter’s slide continues, with nearby February down nearly 4¢ on the day yesterday. As demand weakens and supplies build, one could expect further weakness in this market, with some estimates that project butter bottoming out in the $1.30s. That said, we see support at current levels. Supply/demand fundamentals are king, but it is important to recognize where support and resistance levels come in, as they typically play a key role in trading behavior.
NFDM futures settled mainly higher on the day yesterday on light volume. NFDM supplies continue to build. However, the free fall has subsided a bit, with nearby Q1 2015 trading sideways for the past 2 weeks.
Dec. 29 spot session results:
Block cheese: $1.4950 (unchanged)
Barrel cheese: $1.4200 (unchanged)
Grade A NFDM: $1.0000 (unchanged)
Butter: $1.5550 (unchanged)
• Class III & Cheese futures to open mostly higher
• Dry Whey futures to open mixed
• Class IV, Butter & NFDM futures to open mixed
Grain markets got a strong start yesterday on the heels of better-than-expected corn export sales and a solid showing on bean export sales. The rally posted a new high for the 3-month move in corn (yes – we’ve been trending higher for 3 months in corn if you can believe it) before failing to maintain upward momentum and closing lower. Soybeans follow similar action as the rally in both beans and bean meal faded into negative territory by the closing bell. Such a failure – albeit small – is a negative indication for both markets. Perhaps it is simply end-of-the-year positioning/profit-taking, but our take is that the markets are materially overdone to the upside for the time-being.
• Corn and soybean futures to open lower
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