Explore the unusual shifts in dairy markets: Class III futures rise while cheese and grain prices fall. What will the USDA Milk Production report reveal for May?

As the dairy markets reopened after the mid-week break in honor of Juneteenth, a significant cultural event was celebrated annually on June 19 to commemorate the ending of slavery in the United States. Traders and analysts were keenly looking for a clear direction. It was a peculiar day indeed — while the cheese spot market moved lower, Class III futures were higher. Let’s delve into these unusual market movements and unravel the factors.

Understanding the underlying numbers can provide clarity as the dairy markets react to a whirlwind of influences. Below is a snapshot of the current market trends: 

Class III Futures Market Sees Surprising Uptick Amid Recent Downward Trends

The Class III futures market saw an interesting uptick despite recent declines. This rebound was a bit surprising. What could be driving this shift?  One possibility is the market catching its breath. After falling prices, minor adjustments and corrections are normal. Traders might see recent lows as too harsh, sparking a buying spree. Expectations of positive news might also play a role, prompting a preemptive move.  Whatever the cause, this uptick adds a new dynamic to an already complex market. Understanding these fluctuations is not just important, it’s crucial to our role as traders and analysts, as it allows us to anticipate and react to market changes.

A Day of Divergence: Cheese Spot Market Buckles Amid Class III Futures Rally

This was an unusual day for the cheese spot market. The cheese sector faced a downward trend despite Class III futures moving higher. ‘Blocks ‘, a type of cheese, dipped to $1.8525 per pound with 13 loads trading. ‘Barrels ‘, another type of cheese, slipped by a penny to $1.9300 per pound with seven lots exchanged.  So, what’s behind this decline? It seems to boil down to supply and demand dynamics and external economic factors. An oversupply of cheese or reduced demand from critical buyers might drive prices down. Economic uncertainties and fluctuations in global dairy trade could also impact the market.

Grain Markets Plunge as Crop Conditions Brighten and Futures Hit Lows Since February

Corn and soybeans saw a significant drop in the grain markets, driven by good crop conditions and ‘technical selling ‘, a strategy where traders sell based on technical indicators rather than fundamental analysis. December futures fell to $4.5675 per bushel, the lowest since February. A positive crop outlook has reassured traders, leading to a wave of selling and pushing prices down.

Nonfat Dry Milk Prices Climb Amid Potential Market Demand Surge and Rising Costs

Nonfat dry milk prices increased to $1.2075 per pound, up $0.0175, with one lot traded. This rise could be due to higher market demand, rising production costs, or shifts in consumer behavior towards dairy products. These elements, along with other factors, will be critical to watch to understand broader dairy market trends.

New Zealand’s Milk Production: A Temporary Decline or a Long-term Trend?

New Zealand’s milk production has declined for the third month. May saw a 4.3% drop year-over-year on a milk solids basis and a 6.2% decrease on a tonnage basis. This might seem concerning, but NZX attributes it to variable weather and pasture conditions.  Despite these drops, the production levels align with the five-year rolling average. So, while the recent declines are notable, they’re part of a long-term pattern with both highs and lows. This decline could have implications for the global dairy market, as New Zealand is a major exporter of dairy products.

The Bottom Line

The dairy markets had an unusual day. While the cheese spot market fell, Class III futures unexpectedly rose, reflecting the inherent unpredictability of the market. Grain markets dropped due to good crop conditions and technical selling, with December futures at their lowest since February. Nonfat dry milk prices rose slightly, hinting at increased demand. New Zealand’s milk production declined for the third consecutive month, sparking questions about future trends. All eyes are now on tomorrow’s USDA Milk Production report for May, a reminder of the constant vigilance required in our field.

Key Takeaways:

• Cheese spot market prices dropped while Class III futures saw a surprising increase.
• Grain markets took a significant hit, with December futures for corn and soybeans reaching lows not seen since February.
• Nonfat dry milk prices witnessed a notable rise, suggesting potential increased market demand or rising production costs.
• New Zealand’s milk production continued to decline for the third consecutive month due to variable weather and pasture growth conditions.
• The upcoming USDA Milk Production report for May is a significant watch factor for tomorrow’s market movements.

Summary:

Dairy markets experienced an unusual day, with Class III futures rising unexpectedly and grain markets dropping due to good crop conditions and technical selling. The cheese spot market saw prices drop to $1.8525 per pound and barrels to $1.9300 per pound, driven by supply and demand dynamics and external economic factors. The grain market experienced a significant drop due to good crop conditions and technical selling, with December futures falling to $4.5675 per bushel, the lowest since February. Nonfat dry milk prices increased to $1.2075 per pound, up $0.0175, due to higher market demand, rising production costs, or shifts in consumer behavior towards dairy products. New Zealand’s milk production has declined for the third consecutive month, with a 4.3% drop year-over-year on a milk solids basis and a 6.2% decrease on a tonnage basis. The USDA Milk Production report for May will provide further insights into future trends.