GENERAL OVERVIEW:
Milk futures took back some of the recent strength due to the decline in the block cheese price. The current fundamentals did not support the recent rally, as there had not been a change in fundamentals.
MILK:
There is concern that the recent strength has run its course. The fundamentals did not support the magnitude of the price rally seen over the past few days. The market ran out of strength this morning and began to show weakness before spot trading. That was the first indication that the price strength lacked support. It was unusual that buying was so strong after a bearish milk production report. Milk production, being as strong as it is, may limit the upside price potential of the market for some time to come. The idea of a program with an incentive to cull cows has not had any concrete evidence of being implemented. Some support has been voiced for it, but whether it will come to fruition is another story. The next question is how much participation would there be? The current high prices for calves may limit participation. The amount of beef added to the market may not impact the beef prices to consumers very much or for very long. This was seen during the herd buyout in the mid-80's as it did not impact beef prices very much. The tight cattle market is here for a while.
AVERAGE CLASS III PRICES:
| 3 Month: | $15.44 |
| 6 Month: | $16.14 |
| 9 Month: | $16.64 |
| 12 Month: | $16.87 |
CHEESE:
It was not a surprise that the cheese price declined after the large increase on Monday. It was unfortunate, but long-term support remains elusive. There is little to slow cheese output due to strong milk production, and a significant increase in demand is not likely to develop anytime soon.
BUTTER:
Butter futures were down hard despite only a slight decline in the spot price. Futures were overdone to the upside, but the magnitude of the decline today was excessive. It was likely due to 30 uncovered offers remaining at the close of spot trading, possibly indicating more aggressive selling may take place on Wednesday. Higher butter prices could be possible due to December inventory being 7% below a year ago.
OUTSIDE MARKETS SUMMARY:
March corn closed down 1.75 cents per bushel at $4.2650, March soybeans closed up 5.50 cents at $10.6725, and March soybean meal closed down $.30 per ton at $294.00. March Chicago wheat closed up .75 cent at $5.2325. April live cattle closed down $0.60 at $237.40. March crude oil is up 1.81 per barrel at $62.44. The Dow Jones Industrial Average is down 409 points at 49,003, with the NASDAQ up 216 points at 23,817.
