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

 

May 27 spot session results:

Block cheese: $1.6600 (up 1.0¢)

Barrel cheese: $1.6050 (down 0.5¢)

Grade A NFDM: 89.00¢ (up 0.5¢)

Butter: $1.8700 (unchanged)

 

Markets exhibited a short-covering rally, with both Class III and cheese higher Wednesday. The net effect is likely a continuation of the jagged, back-and-forth trade to which we’ve become accustome. When short-covering occurs it can create a vacuum below the market unless new buyers have reason to get nervous.  We don’t see new buyer side worry – not yet at least.

There is a growing interest from both sides of the aisle on hedging pieces for all of 2016.  With 2016 Class III averaging around $16.90/cwt., and cheese futures clocking in at $1.76/lb., both end-users and producers are posturing initial hedges for 12-18 months out. Producers who have begun lock up some margin for next year have done so on a rather small piece of their milk production. As grain prices continue to decline of late, however, producer margins and hedge strategies for some or all of next year have looked increasingly attractive.  Drought conditions in California and an uncertain demand side of the equation going forward keeps aggressive producer selling at bay. But there is developing interest, and we expect to see more 2016 hedging earlier than the normal hedging window beginning in September.

Futures outlook: We look for Class III & Cheese to open steady to higher; and Dry Whey to open steady.

 

Butter futures rallied Wednesday, trading anywhere from 1.975¢ higher to 5¢ higher. While the recent stocks report was bearish, the mid to low $1.90s seems to be a good level of support. The market wants to see another big push to build inventories in May. Beyond that, we need to be watching how quickly stocks are drawn down in June. There is a possibility butter stocks are not depleting as quickly as normal as we face increased imports of fat for Q3 2015.  Drought conditions in California, our largest producer of butter, also remain supportive and likely the most glaring issue factoring into the bullish sentiment.

NFDM futures traded mixed yesterday ,but the tone remains week.

Futures outlook: We look for Class IV, NFDM & Butter futures to open mostly steady.

 

Grain futures

Corn prices continue to slide lower and are poised to test – and possibly take out – contract lows. Plantings and generally favorable crop conditions are a wind on the backs of market bears, along with a U.S. dollar driving higher this week. Currently, 92% of the corn crop has been planted, a 7% gain on a weekly basis.  Texas and some other Plains states lag due to heavy rain seen recently.  U.S. soy crop plantings reflect 61% planted vs. the 55% average. Drought conditions continue to improve.

Futures outlook: We look for grain futures to open mixed.

 

 

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