Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.


In one word, that pretty much sums up the aggressive upswing in the Class III futures market over the past couple of days, with most contracts soaring to fresh highs in the midst of softer spot sessions. While blocks and barrels traded lower, futures shrugged it off and went nuclear.

We have been clear that it would take more than a modest uptick in production to warrant price breaks, and it appears that is part of what the market is factoring in here. California production came on strong and early in 2014, while the Midwest lagged. Now the inverse is playing out, with Midwestern production on the rise and California trending lower. The point is there hasn’t been a concurrent uptick in production that would’ve yielded strong results.

The dry whey side of things has added fuel to the fire. With cash transactions around the country coming in at around 70 cents per pound, futures have traded firm and rallied to close that gap.

Another contributing factor to the strong price action is the slightly bullish skew for cheese: surplus milk that was being diverted from Class IV back into Class III has now found its way back to the powder side, a contributing factor to lackluster cheese production.

Class IV futures extended its two-day rally. Taking its cue from the spot butter market, the Class IV market has clearly been awakened from its recent snooze.

Following a flat spot session that left Grade A at $1.7875, NFDM futures rallied up. As international prices soften and domestic inventory builds, prices could very well be headed lower. Look for the trade to trend sideways to lower from these levels.     


May 1 spot session results:

Block cheese: $2.1000 (down 3.25¢)

Barrel cheese: $2.1000 (down 3.0¢)

Grade A NFDM: $1.7875 (unchanged)

Butter: $2.0025 (up 5.25¢)


Today's expectations:

• Class III & Cheese to open steady to lower

• Dry Whey to open steady

• Class IV, Butter & NFDM to open mixed 


Grain futures

Grains all traded in a sea of red as funds let go of some of their long positions, weather forecasts have improved and news of soybean cancellations rippled through the trade.


Today’s expectation:

• Grain complex to open higher

FC Stone's annual Dairy Outlook Conference will be held June 18-19, in Chicago. Visit www.intlfcstone.com/events for information.

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.