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

Class III futures legged higher for a second day in a row, taking its cue from a stronger cash market. With both blocks and barrels edging higher, futures have rallied in sympathy. Despite the stronger price action, it should be noted that it has occurred on lighter than normal volumes, which would indicate a cautious approach to further upside potential.

Fundamentally speaking, international prices continue to slip, albeit at a slower rate than we have previously seen. We are still hearing of ramped up production levels coming out of Europe, however they are nearing the end of their peak, and in some cases are past it.

From a domestic standpoint, a couple of points need to be addressed.

First, there’s nothing in the rule book that says U.S. prices have to go to international price levels in order to be competitive. Granted, the larger the spread the more likely some demand destruction will take place, but that may not be a bad thing for the market.

This brings us to the second point, in that the market is quite likely performing a rationing function. in that there is still demand for product amidst tighter-than-ideal supply levels. With the California flush over and temperatures on the rise, production levels have stalled there. This dynamic, coupled with a flush season that really has not gotten off the ground in the Midwest, the market never really got that influx or “wall” of milk that has been typical in years past. At this point, even it if does materialize, it will likely be counterbalanced by less production out West.  

Class IV futures posted an upside day in reaction to mixed signals from the NFDM and butter markets. It’s interesting to note that NFDM futures rallied, despite steady to softer price action both domestically and abroad.


May 8 spot session results:

Block cheese: $2.0450 (up 0.25¢)

Barrel cheese: $2.0525 (up 1.5)

Grade A NFDM: $1.7875 (up 0.75¢)

Butter: $2.1550 (up 0.5¢)


Today's expectations:

• Class III & Cheese to open mixed

• Dry Whey to open steady

• Class IV, Butter & NFDM to open steady to lower 


Grain futures

The grain market saw mixed price action in the final session before USDA releases their latest World Ag Supply & Demand estimates report at noon (Eastern). Corn and soybeans both closed in the green in trade dominated by last-minute position squaring. July corn finished up despite yesterday’s lower-than-expected export numbers. July beans were also strong, the result of better-than-anticipated export numbers and the continued tight, domestic balance sheet.

 Crop Production and World Ag Supply & Demand Estimates reports are released later today, May 9.


Today’s expectation:

• Corn to open mixed

• Soybeans to open mixed


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.