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

Slight gains early in the week led to an explosive upward price move for Class III and cheese futures on Thursday.  Class III June and July contracts settled 48¢ and 50¢ higher, respectively. Perhaps more interesting was the rally in May Class III, which eradicated the discount to the spot market.

Looking under the Class III hood a little closer reveals that the contract months with the greatest price increase (the nearby months) also saw open interest decline ever so slightly. While this information doesn’t support or negate the rally, it is interesting to note that open interest did not grow by leaps and bounds.  In other words, there is likely some new commercial buying in May-July, but we’d suggest that the rally is more indicative of futures discounts correcting with the premium in spot – driven in part by some short-covering action.  When this happens, markets are vulnerable to increased volatility – including downward price swings. 

Although yesterday’s move could be construed as a short-term bounce, there is some genuine concern surrounding the discounts the Class III and cheese markets have carried.  We know we’re the most expensive cheese on the block, but we also hear of tightness of inventory, good forward sales and a stunted Upper Midwest milk production flush. All of these things are underpinning futures through Q4.

NFDM saw another good round of buying Thursday. While futures discounts look attractive to spot, we have to wonder if the short-term technical bounce we’ve seen develop in NFDM is going to be just that – short term. We expect a more mixed NFDM trade to end this week.


April 24 spot session results:

Block cheese: $2.21 (unchanged)

Barrel cheese: $2.1800 (down 3.75¢)

Grade A NFDM: $1.8575 (unchanged)

Butter: $1.8950 (unchanged)


Today's expectations:

• Class III & Cheese to open firm

• Dry Whey to open steady

• Class IV, Butter & NFDM to open mixed 


Grain futures

Grain markets closed mixed yesterday, with corn lower and beans higher.  The market has been trading on colder and wetter 14-day forecasts for the past several sessions, and has done a good job of pricing regarding concerns surrounding planting delays. The soybean market is getting a brief technical bounce, perhaps inspired by positive old-crop export sales, but has really focused this week on reports of additional cargoes of Brazilian beans – previously sold to China – being resold to the US. Chinese crushers continue to negotiate with exporters to cancel South American cargoes.


Today’s expectation:

• Corn to open higher

• Soybeans to open lower


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.