Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.

There’s little question dairy markets, both domestically and from a global standpoint, are in exciting and historic times. Although 2015 has proven to be less of a headline grabber than the bull market of a year ago, the 30,000-foot view of current dynamics include a lot of moving parts.

First, consider the resilience of both cheese and butter prices in the face of bearish headwinds. Granted, there’s a great chasm between the two years price wise, but the firm tones of late speak volumes as to current demand levels.

The question at this point is what to expect moving forward. We are hearing reports of heavy milk flows in certain areas of the West, suggesting flush is in swing and, with the Midwest to come online in short order, volumes could soon become burdensome. The 1.7% increase in production from year ago levels may have hinted a certain level of scaling back has begun, but it’ll likely take more than one or two months of sub 2% tallies to suggest a bottom could be put in with any degree of confidence. Couple that with the likelihood of increased production across the EU milk belt as quotas go the way of the dinosaur, along with the strength in the U.S. Dollar that has curbed our export capabilities, economic slowdown in China, the continuing Russian dairy ban, recently increased volume on offer on GDT, and well…you get the picture.

We’d be remiss not to acknowledge the existence of possible bullish factors that could transpire as we head deeper into 2015. Global cull rates have increased of late, as producers take advantage of high beef prices and lower milk prices. New Zealand suggests lower production levels; there is chatter of a partial ban-lift from Russia later in the year that could be supportive to dairy prices; and Chinese stockpiles of powder have likely decreased and could lead to a more aggressive purchasing pattern. On the domestic front, we are still contending with significant drought issues in California. If these aspects continue to evolve, and throwing in the possibility of a pullback from the breakneck, unabated rally in the U.S. Dollar – now at 12-year highs –and a surge in exports could still happen.

As Q1 2015 draws to a close, fears of a cataclysmic price event have largely been put on the back burner, as recovery from the mid-January lows have held for the last two months and continues trade in a sideways range, albeit with sharp spikes in volatility.

 

March 27 spot session results:

Block cheese: $1.5400 (up 0.75¢)

Barrel cheese: $1.5450 (up 2.5¢)

Grade A NFDM: 97.50¢ (unchanged)

Butter: $1.7525 (up 5.25¢)

 

We look for Class III, Cheese and Dry Whey futures to open firm.

We look for Butter futures to open firm; NDFM futures to open steady; and Class IV futures to open quiet.

 

Grain futures

USDA Grain Stocks and Prospective Plantings reports are scheduled for release on March 31.

Grain markets finished the week mixed. Short term, the corn market finds itself wrestling with technical levels that have kept range-bound trading for months. The larger picture will be how many acres it lost to soybeans, and whether the funds opt to cover their short position. If both scenarios play out, a somewhat sustainable pop to the upside may be in the cards, but we largely expect such a rally to be sold, as there’s just too much accumulated stored product from the past two seasons to be unleashed. The more likely outcome from this report is a bit of initial volatility that will quickly be digested and a return to immediate fundamental issues, such as planting delays and export numbers to ensue.

The bean market feels like it’s on the verge of big movement. Increased planted acres, adequate global supply and favorable weather could likely contribute to a healthy move to the downside. Not trying to put the cart in front of the horse here, but on a longer-term horizon, sub $3.00/corn and mid $7.00/soybeans may not be all that unrealistic.

 

We look for Corn futures to open soft; Soybeans to open firm.

 

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