Class III rallies as spot cheese proves resilient

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

When Yogi Berra said, “it’s like de ja vu all over again,” he could have been talking about the spot session yesterday. We saw block prices fall before buyers stepped in and lifted prices back up to $2.155, with trades coming all the way up. And we settled at $2.155, unchanged on the day with a whopping 16 loads trading. Even the barrels got in on the action, with prices up ½ cent to $2.13, but didn’t trade, leaving two bids unfilled.

The futures market saw a relatively active session with 1,282 contracts traded and prices settling steady to 30 cents higher. We opened the morning with prices as much as 20 cents stronger before blocks traded down. As soon as prices in spot broke, the futures followed, only to quickly recover as soon as the blocks started getting bid back up on the spot session. Most of the activity was confined to August and September, with 927 contracts trading in those 2 months. 

The weekly Cold Storage Report indicates showed that cheese stocks rose 0.8% on the week and 4.8% year over year. The USDA’s Livestock, Dairy and Poultry report indicated that American cheese demand in May rose 1.4% above a year ago and 3.5% above previous-month levels. Year to date, American cheese use is up 3.5%, while other cheese usage is up 6.9%. Total cheese use is up a very solid 5.5%.

Cheese futures traded 32 times and finished mostly flat with the exception of September and October where prices were up 0.011 to 0.012 cents, incidentally all activity was confined to those months. 

Grain prices trended higher for most of the day, with corn fighting its way to gain 1.75 cents in September to settle at 691.50 while December picked up 4.75 cents to settle at 691.50…both September and December are at parity. Meanwhile, beans trended higher most of the day, but were still down on the day with September losing 8.50 cents to 1371.75, while November lost 8.25 cents to settle at 1380.50.

The fact that grains were able to trend higher in the face of a soaring dollar which rose by more than 600 points and a steep fall in crude oil prices which plummeted by over $2 tells us that buyers still see some weather risk in the market. Early Tuesday, pictures of parched bean crops in Ohio circulated the trade floor. While it seems that for the time being the worst is behind the corn crop, beans are still vulnerable until pod setting is complete. That being said, current six- to 10-day weather reports call for healthy rain across much of the grain belt.

The dollar will continue to have an impact of grains. The U.S. will not default and only talking heads on TV will seriously explore this possibility. Nonetheless, in the near term we’ll hear talk of downgrades by the ratings agencies, the same agencies that slapped AAA ratings on those wonderful subprime mortgage bond, which is bearish of the dollar, but when the debt situation is resolved, we wouldn’t be surprised to see the Greenback soar and that should push grain prices lower.

We look for corn to open 1 to 2 cents lower and soybeans to open 1 to 2 higher.

Daily CME spot market prices:

Block cheese: $2.155 (unchanged)

Barrel cheese: $2.13 (up 0.5 cent)

Butter: $2.08 (up 2 cents)  

Grade A NFDM: $1.525 (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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