Caution: Market Volatility Ahead
While markets have been moving in a positive direction for the past few months, analysts say farmers should expect volatility ahead.
Cheese and Class III futures markets have grown steadily over the past seven weeks, but “we’ve entered into a period of more futures price volatility,” says Nate Donnay, director of dairy market insight at INTL FCStone. Although the broader trend for the markets remains positive, increased volatility is on the horizon, he says.
“We think zigs and zags will be par for the course here in the short-term,” he says. “We wish we could tell you that direction would be smooth and easy to calculate, but this is a turbulent patch of air so keep buckled up.”
A good example of that happened this week as futures prices dropped this week mostly based on the news regarding Mexico’s potential application of tariffs on U.S. cheese.
“Futures price weakness earlier in the week has given way to a two-day rally as jitters over Mexico seem to result in the same conclusion: our friends to the South still want to do business with us,” Donnay says.
However, Donnay says the downward correction could be over because we are in a strong period of stable futures market premiums, spot cash market situations and weather favorable for good milk production.