Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Class III futures prices reversed course and edged modestly higher yesterday. Stronger dry whey futures along with firming spot cheese prices underpinned the strength. Cheese futures prices, which have been moving in lock-step with Class III most of the week, finished mixed yesterday with slight strength in nearby contracts; November 2014-January 2015 finished lower.
Both the Class III and cheese trade have seemingly shrugged off a weaker global price situation yet again this week, as participants focused on continued robust U.S. demand for cheese and higher overnight temperatures out West. But these markets look a little overbought at current levels so we expect the potential for a downward correction to start in August.
The strength in dry whey futures is somewhat surprising, given that supplies in the country appear more than adequate. While we can’t argue with strength as it is happening, we expect to see more whey production – not less – in the coming months. Spot butter offers continued, as an orderly decline for butter prices has been the feature all week. The question we’ve been asked is: Where is the bottom? So far, this is a pullback on the price of butter – not necessarily the start of a trend lower. Our expectation is for the spot price to ultimately take us back into the $2.30/lb. range.
Year-to-date dairy cow slaughter levels are 10.4% lower than 2013 levels.
July 31 spot session results:
Block cheese: $1.9775 (up 0.25¢)
Barrel cheese: $1.9875 (up 4.0¢)
Grade A NFDM: $1.6500 (down 2.5¢)
Butter: $2.4400 (down 3.0¢)
• Class III & Cheese to open mixed
• Dry Whey to open steady
• Class IV & Butter to open steady
• NFDM to open mixed
The grain complex closed out July mixed, as a confluence of factors was at play. The corn market succumbed to the prospects of beneficial rains forecast beginning this weekend, with the heavy rainfall totals projected for Monday through Wednesday. Yesterday’s weekly export sales report showed strong results for the new crop, with old crop corn sales lackluster in comparison.
The soybean market pushed higher in the nearby contracts, off the strength of old crop export sales, while the new crop contract inched higher in sympathy, as the improving weather forecasts would be beneficial for pod development.
• Corn to open lower
• Soybeans to open lower
The trading of derivatives such as futures, options, and swaps may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Any reference to past performance is not indicative of future results. All references to futures/options trading are made solely on behalf of FCStone, LLC. All references to swap execution and bi-lateral swaps are made solely on behalf of INTL Hanley, LLC. FCStone, LLC will clear swaps when applicable. Swaps are only available to eligible counterparties. All observations of economic, political and/or market conditions are not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. and its subsidiaries and should be construed as market commentary. All recommendations to buy or sell a specific derivative or forecasting statements regarding market activity and the pricing thereof should be construed as a solicitation in any jurisdiction in where such an offer or solicitation would be legal. Proper context and guidance including but not limited to the particular trading objectives, financial situations and the needs of the intended audience were taken into consideration when this recommendation was prepared. Contact your account representative for specific advice to meet your specific trading preferences or goals. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. and its subsidiaries. Sources of information believed to reliable were used in preparing such observations, and no guarantee or representation regarding the accuracy of those sources has been made. INTL FCStone Inc. and its subsidiaries are not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material.