note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
August 28 spot session results:
Block cheese: $1.7000 (up 4.5¢)
Barrel cheese: $1.6000 (unchanged)
Grade A NFDM: 77.0¢ (down 4.0¢)
Butter: $2.3400 (down 0.25¢)
Class III futures spent last week treading lightly, as indecision and hesitancy on market direction kept traders in a defensive posture. This cautious approach is likely to persist until various factors play out and the dust settles between the spot cheese spread, butter strength, the macro economic concerns.
The September Class III contract shed more than 60¢ in light of a deteriorating dry whey market that tanked to five-year lows, and pressure on the spot cheese market.
Cheese futures slid lower as spot prices continued to demonstrate overall weakness amid a widening block/barrel spread. The market remains trading in its well-established range and is oversold at present with futures direction likely to be predicated on spot movement.
Block cheese prices were down 4¢ on the week, to close at $1.70/lb.; the block price is 63¢ below last year. Barrels ended the week 9.5¢ lower, at $1.6000/lb.; the price is 74.50¢ below a year ago. The spread is wide at 10 cents, so we look for that to correct and futures to respond to that action.
Dry whey futures fell to five-year lows. Friday’s action did see a bit of stabilization, however market tone remains decidedly weak in light of ample stock levels.
Futures outlook: We look for Class III to open lower; Cheese to open soft; & Dry Whey to open lower.
Class IV futures remain in elevated territory, as the rally sparked at the beginning of the month has been able to hold firm, courtesy of strength from its components and a long-overdue correction of the Class III/Class IV spread.
NFDM futures spent the better part of last week picking up steam. The CME spot NFDM price was down 1.5¢ on Friday, and is currently 55.5¢ below a year’ago.
The butter market has been like a lion let out of its cage for the past month, and despite a bit of a pullback on Friday, 2015 contracts remain at lofty levels courtesy of a resilient spot price. The spot butter price settled the week at $2.34, down 3¢ from the previous Friday, and 41.50¢ lower than in 2014.Cream has been tight for quite some time. Demand from ice cream manufacturers has been strong all season and continues to be a supportive dynamic, although not much time is left on the ice cream demand season.
Fluid milk sales are on the rise as well, particularly for whole milk, and the school season just started. But stock levels are quite comfortable compared to year-ago levels.
We also expect October to be a big month for foreign fat to enter the U.S. market, followed by another January 2016 wave of size.
Futures outlook: We look for Class IV to open steady; NFDM to open steady to lower; & Butter to open steady.
Grain futures
Grain markets put in a rather tepid week. Both corn and beans did press to the upside on Friday.
Futures outlook: We look for the grain complex to open soft.
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