Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Class III posted a solid volume of 1,413 contracts during bursts of trading activity in what otherwise seemed like a quiet day for the dairy markets on Thursday. After starting out 4 to 11 cents lower, nearby futures regained ground and then rallied to as much as 19 higher (November) as another round firming spot cheese prices pushed blocks up 1.50 and barrels up 4.50 cents, respectively. Considering the falling international cheese prices, we may be looking at the first time all year when domestic cheese demand alone is at the helm.
Maybe that’s why Thursday’s rally left something to be desired by market bulls. The three-day rally on futures is showing signs of slowing as we approach heavy technical resistance of the 200-day moving average on November, the lead month. Further out in 2012, prices haven’t participated in this week’s recovery rally, which is surprising considering the strength in dry whey futures Thursday. Regardless, it’s been a quiet sideways trade on so far as deferred prices have mostly consolidated over the past few days. We expect that to change here in the coming days as the stabilization in price ought to give way to another round of commercial physical and financial buying, giving a boost to at least the first half of 2012.
Cheese futures traded 130 contracts in mixed fashion yesterday finishing between .008 higher and .012 lower. The bulk of the trading activity, or 97 of the 130 contracts, took place in the December through March time period. Like Class III, cheese is maintaining a slightly discounted pricing skew into 2012 and we expect that to continue, though a bounce on futures may be imminent. Since last Thursday, the block price is up 2 cents to $1.7400. There have been eight trades. The barrel price was up 6 cents at $1.7300 with 21 trades. The spread is 1 cent, outside the historical range of 3 to 5 cents.
Class IV traded steady to 30 cents lower Thursday largely ignoring the steady to firm trade for both butter and NFDM futures. Granted, Class IV can afford to give up some ground and be priced in line with butter and powder as this market has run a little hot over the past few weeks posting a slightly premium to the butter/powder spread. We look for more of a mixed trade for Class IV today.
Overnight Class III was mixed from plus four to minus four on a light 15 trades. We look for milk to open mixed.