Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Dairy markets rallied Tuesday on strong price action during the GDT auction. Overall, GDT price index rose 10.1%, with cheese and whole milk powder leading the way with double-digit percentage increases. Volumes were again quite light – with Quantity Sold registering at 22,957 (MT) – the lowest since May 2013.
The surge in price increases over the past several GDT events has come at a time of lower volume offerings. While we see dairy product demand as stable to increasing in certain global markets, China remains noticeably quiet, and it remains unclear as to the long-term impact of GDT auctions on U.S. based prices. New Zealand milk production for the month of January fell 2.9%. At that rate, milk production will have to drop by 18% through May 2015 to achieve the prediction of a 2014/15 decline of 3.3% presented to the world at the end of January. That may be a tall order, but we will monitor the situation closely. At this point, we suggest GDT auctions will continue to inspire U.S. buyers, but their interest is expected to be well satisfied with available product.
While we expect to see spot market bidding continue – particularly for NFDM – we expect that the futures market may have run too far ahead of the news, leaving cheese and NFDM in particular ripe for a pullback. In essence, we look for spot and futures to converge in the next few trading sessions. Easter butter buying is in full swing and ought to continue to support butter prices in the near-term.
Friday’s Milk Production report will offer a fresh glimpse at USDA milk production totals for January. While early indications are for increases in the order of 2.5-3.0%, we must remember that milk production rose by 1.1% last January. We still hear that milk supplies in most if not all milk sheds are adequate to heavy. Due to the conflicting fundamental information – supplies plentifully but demand picking up – expect a choppy trade from current levels.
Feb. 17 spot session results:
Block cheese: $1.5400 (up 1.0¢)
Barrel cheese: $1.4850 (unchanged)
Grade A NFDM: $1.1700 (up 2.0¢)
Butter: $1.7200 (unchanged)
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