Corn collapses on USDA data; Class III shows vulnerable side

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

Our office will be closed Monday in celebration of our Independence Day Holiday.  The next edition of this dairy commentary will be published on Tuesday July 5.  Have a fun and safe holiday with your families and friends!

Spot prices held steady Thursday and, despite a sole bid in the blocks, futures prices fell. Simply put, you have to feed the bull and it went hungry yet again following days of nothing in the style of significant spot cheese price increases. Futures prices fell as much as 32 cents, and they did so on convincingly strong volume of over 1,700 contracts. On top of it, the massive break in corn prices has allowed dairy producer margins to enter the equation and invited light producer selling.

With the end of the 1st half here and the start of the 2nd half upon us, it is important to note what trend starts us off — it is likely to persist for months to come and it appears likely to be a direction of weakness, although we will reserve more of a final judgment until after Independence Day. We anticipate spot cheese prices to fall significantly any day now.

Corn was a big story. The USDA shocked and it did so in bearish fashion. Corn prices traded limit down on the exchange and synthetically (options and OTC) traded around 60 lower most of the day. There is a lesson somewhere in a price break like this, which was somewhat unimaginable just four to six weeks ago. When the worry goes away, prices can fall and how! 

At the beginning of June, there were reports of the U.S. literally running out of corn by September. We were told long ago that markets don’t repeat, but they do rhyme. And that rhyme today echoes the age old commodity market mantra:  markets tend to bottom on large inventories and top on small.

As we start the 2nd half, let’s be careful to see what prices do next week after the holiday. There is a chance we get the selling out of the way quickly and bounce as the trade resumes as we enter July. But right now, the trend is decidedly lower and we must be very cautious in recommending longer-term buy hedging. 

We look for corn to open 25 to 35 cents lower and for beans to open 8 to 11 higher.


Daily CME spot market prices:

Block cheese: $2.13 (unchanged)

Barrel cheese: $2.0875 (unchanged)

Butter: $2.04 (up 1 cent)  

Grade A NFDM: $1.625 (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.

Source:  FCStone/Downes-O'Neill



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