Class III consolidates; butter/powder weak Tuesday

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Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

What started out looking much weaker ended calmly Tuesday. Follow-through selling from Monday prompted 2011 Class III futures to start yesterday’s session largely on weaker footing.  Futures selling cooled ahead of the spot market trade. And while the 3-cent drop in blocks didn’t inspire market bulls, the round of post-spot selling was short lived. With steep discounts on futures already in place, market participants found solace in more of a consolidation trade.  When the dust settled, 1,921 contracts exchanged hands and prices were 11 lower to 9 higher through December 2012.

2012 prices continue to be well-supported by bear spread traders (sell the nearby months and buy the deferred) and commercial buyers.  For all the increased activity out there over the past few weeks, however, prices haven’t moved much in the past 6 or 7 trading sessions.  In fact, the January to December 2012 price average has hovered around a $16.90 average since arriving there during the last week of July. 

While many producers are waiting for a higher price average for next year amid high feed costs, we would be remiss to not put the 2012 prices into historical perspective.  Class III announced prices averaged $11.36 for 2009 and $14.41 for 2010.  During the big bull run of 2007, that price average was only $18.04 ($13.56 low, $21.38 high – only eclipsed by July 2011 at 21.39).  So, while next year feels low-priced by the benchmarks of current milk, corn and hay prices, historically $16.90 to $17.00 yearly average is a solid, profitable price level to sell.  Keep that in mind as we move forward. If the outside commodity markets break from their respective highs, the justification for high-priced milk that many have used dissipates.

We look for Class III to open lower in front and slightly higher in back.

Corn traded lower overnight Monday, bought fought back to positive territory by Tuesday morning and stayed there all day. The bulls leaned on a weakening U.S. dollar and the highly scientific mid-summer phenomenon known as “turnaround Tuesdays.”  Also, concerns over the condition of the crop circulated the floor during the day as well.  Corn crop ratings a steady decline for four weeks, and for the last three weeks, it’s been below the ten-year average. Last year’s corn crop barely changed for the period of July.  But to be fair, last year Russia was ablaze.

Soybeans tested and took out the $13.00 level but will likely hold as the key August growing period is just ahead. Large growing regions responsible for much of the double crop soybean acreage is also very stressed (Texas, Arkansas, and Delta). Traders will weigh this against expectations for a large South American soybean crop just ahead.    

Rains are expected only in the far western and southwestern regions with more widespread rainfall forecast for Friday. For the Southern Plains, scattered thundershowers are expected through Saturday. The larger precipitation amounts are expected north of the Texas panhandle.

We expect a largely mixed, stable trade here today ahead of tomorrow’s USDA Report. We look for corn to open 7 to 9 cents higher and soybeans to open 12 to 15 higher.

Daily CME spot market prices:

Block cheese: $2.10 (down 3 cents)

Barrel cheese: $2.135 (unchanged)

Butter: $2.07 (down 3 cents)  

Grade A NFDM: $1.51 (unchanged)     

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.

 

 



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