This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Class III and cheese futures finished mostly mixed Thursday, amid moderately heavy volume. Spot activity was also mixed, with block cheese pushing higher, while barrels were slightly lower. The trade seems to be more focused on the barrel weakness than the block strength, lately as nearby futures rallies are lackluster. It’s not barrel cheese season, but barrels seem to be a better barometer of market sentiment than block cheese at this time. Still, we’re in the midst of holiday demand. Although promotions will be few and far between this season, market participants will have to contend with daily gyrations that may muddle the overall demeanor of a market that seems to be turning more and more bearish.
Overall weekly cow cull rates remain lighter than normal. For the week ending Oct. 4, dairy cow slaughter under federal inspection was down 11.3%, at 53,900 head, compared with the same period the previous year. Year-to-date slaughter levels are 10.7% lower than 2013 levels, with 2,146,300 head slaughtered.
Dry whey futures continue to show good trading volume this week. We have anticipated that is only a matter of time before dry whey would follow powder with some level of weakness, but we’re having trouble figuring why 2015 would be sold so aggressively in the low-40¢ range. There could be any number of reasons, but current activity in the country is closer to 60¢. We’d expect more price weakness in the nearby contracts than we’ve been seeing. Perhaps that will come as we roll the calendar into 2015.
The price of spot butter continued its collapse. Where is the bottom? We think that it’s somewhere around the current level. In fact, we expect that once the dust settles, a 20¢ bounce is not out of the question. However, markets tend to overshoot expectations even if for a short time, so be on the lookout for more selling. As far as current fundamentals are concerned, a $2.15-$2.20/lb. butter seems to make the most sense, given available supplies and time of year. Butter futures are as flat as they have been for some time from December 2014 to December 2015.
The NFDM recovery bounce over the past week or so looks to be subsiding, as January to June contracts slide back into the mid-$1.30 range. Meanwhile July to December saw firming action yesterday, creating a forward curve that looks more like the old days. NFDM prices are expected to be choppy today, but the overall picture is bearish.
Class IV futures were quietly mixed yesterday. While we’ve seen many of the dairy complex products grow in volume and open interest recently, Class IV has seen a slowdown in market activity. We expect that will change in the coming months with a resurgence of activity.
Oct. 16 spot session results:
Block cheese: $2.2500 (up 2.25¢)
Barrel cheese: $2.0900 (down 0.5¢)
Grade A NFDM: $1.3800 (unchanged)
Butter: $2.1300 (down 13.5¢)
Today’s expectations:
• Class III & Cheese to open mixed but mostly lower
• Dry Whey futures to open mixed
• Class IV futures to open mixed
• NFDM futures to open steady
• Butter futures to open steady to slightly higher
Grain futures
The grain complex posted modest gains yesterday, as the strong rally from late last week is subsiding and choppy. Harvest weather is improving and farmers are very reluctant sellers. The slow harvest has kept the pipelines empty, leaving end-users scrambling to find bushels. Technically we’re in no man’s land. Both corn and soybeans are getting a reprieve from the downtrend, but there is still a cost-of-carry structure to both and we expect the overall trend is still lower.
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