Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
The post-Fonterra announcement (of lower milk production in New Zealand) rally has lost its luster. On Jan. 30, I mentioned the insignificant amount of milk the Fonterra announcement represented (just under 92 million lbs.). We rallied hard and the first half contracts topped out just below the 100-day moving average. The market then traded sideways, looking for direction from spot.
If you look to the spot recap, not much has changed, providing a technical picture that doesn’t get you invited over to a dairyman/woman’s house for dinner. We see a market that was unable to sustain a rally on what was construed as bullish news.
The problem with a bull rally in a bear market is that the bull always needs to be fed. Unfortunately we don’t have any more food to feed. Negative news continues to pile on: Chinese exports dropped 19.9% in January; feed costs look to continue to move lower; cull rates are up slightly, but not predicted to become problematic there's the escalation in the Pacific port slowdown; the end of European quotas; the U.S. production flush approaching; etc.
The one x-factor that needs to be reconciled: Where has the 40 lb. Block gone? I would expect Blocks to again find their way to the spot session later this month. But we will have to wait and see.
Nonfat dry milk played both sides of unchanged, as participants look to price a growing inventory in the wake of higher milk flows and lack of exports. Exports were already being hit by the strong dollar and weakening global economies, but the escalation over the weekend (Pacific Coast Port shutdowns) has many worried. Ports are back open, but load times are costing billions.
Feb. 10 spot session results:
Block cheese: $1.5350 (unchanged)
Barrel cheese: $1.4800 (down 0.25¢)
Grade A NFDM: $1.0950 (down 0.25¢)
Butter: $1.7450 (unchanged)
• Class III futures to open 10¢ higher
• Cheese & Dry Whey futures to open steady to slightly higher
• Butter, NFDM futures to open steady to slightly lower
Yesterday’s grain markets were defined by USDA’s supply/demand report, with the initial bullish reaction quickly eroding as contracts pushed lower through the latter half of the trading session. USDA made some minor adjustments to the balance sheets, increasing corn for ethanol use, but partially offsetting that with a reduction in feed usage. Soybean carryout was reduced 25 million bushels, with an increase in crush and exports partially being offset by a 10 million bushel increase in production.
The report didn’t change the trend, and with a large South American crop looming, expect soybeans to come off and test contract lows before US planting intentions are released March 31. Corn will be more of a follower, but expect more weakness.
• Corn futures to open 2¢-6¢ lower
• Soybean futures to open 2¢-5¢ lower
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