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

Market bulls found inspiration from the spot cheese session, as barrels expanded the price advantage over blocks to 4.5 cents. August through November Class III contracts posted the strongest gains. Conversely, the 1Q 2015 Class III pack continues to find itself in a bearish position. Fundamental pressures are growing, as the recently announced Russian ban on dairy products from Western nations may indirectly drive domestic prices lower. Roughly 70% of Russian imports of cheese were from Western nations now barred from trade. These nations must now look to other markets to export their product – markets where the U.S. would now compete for market share. Dry whey tallied numerous trades on the day, resulting in mixed prices. 

Class IV futures remained mostly unchanged to start the week, failing to draw much inspiration from the divergent results of NFDM and butter spot markets. The spot butter market provided an early head fake, pushing lower to start the session, before buy-side interest drove the market a penny higher; 16 loads traded. This trading activity drove butter futures between 1.25¢ and 4.3¢ higher in the August through November contracts.  NFDM futures, on the other hand, slipped lower in August through October 2014 after the spot Grade A price fell 2¢.

 

August 11 spot session results:

  • Block cheese: $2.09000 (down 1.0 cents)
  • Barrel cheese: $2.1350 (up 1.25 cents)
  • Grade A NFDM: $1.5200 (down 2.0 cents)
  • Butter: $2.4100 (up 1.0 cents)

Today's expectations:

  • Class III to open higher
  • Cheese futures to open higher
  • Dry Whey to open steady
  • Class IV to open steady
  • NFDM to open lower
  • Butter to open steady to higher

Grain futures 

Grain markets saw pre-report positioning ahead of today’s USDA Crop Production and World Ag Supply & Demand Estimates reports. Talk of droughts curbing China’s potentially record corn production added to the bullish sentiment on the day. USDA’s weekly Crop Progress report pegged the corn crop at 73% good/excellent, unchanged week over week, but 9% better than the corresponding week last year.

The August soybean contract rocketed higher ahead of its Thursday expiration, fueled by old-crop supply tightness. The weekly Crop Progress report pegged the soybean crop at 70% good/excellent, 1% lower from the week before, but still 6% higher than during the corresponding week last year.   
 

Today’s expectation:

  • Corn to open lower
  • Soybeans to open lower
  • Soybean meal to open steady to higher

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.