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

After last week’s impulsive price decline, nearby Class III and Cheese futures markets posted a rally Monday on stability in both Block and Barrel markets. Although spot cheese finished unchanged on the day, multiple bidders showed interest, sending the already discounted futures sharply higher in the 2014 contract months.  2015 Class III contracts traded modestly higher most of the day before closing mixed. Stronger dry whey values helped spur strength in Class III.  Cheese futures were under more pressure, leaving just the first quarter to trade higher, while the entire January to December 2015 strip finsihed lower.  

Open interest – or the total amount of open positions in the market – is a benchmark number for market participation and overall health.  Open interest continues to impress, as more and more activity is transacted for 2015. 

According to USDA’s latest Livestock, Dairy and Poultry Outlook report, overall milk use in August was lower than year-ago levels. American cheese demand in August was 6.8% below a year ago, but 3.3% above previous-month levels. The report didn’t show much in the way of imports, but we expect to see imports increase as we move into November. To date, there has been little reported imported cheese delivered. 

Dry whey futures saw a surge in trading activity, pushing 2015 prices higher.

As cheese gets a bounce, butter and powder markets continue to show weakness.  Butter futures were mixed to mostly lower yesterday, and NFDM finished steady to lower.  Class IV futures finished mostly lower on light volume. Spot butter fell a penny, while the Grade A NFDM price lost 0.5¢/lb.

 

Oct. 27 spot session results:

Block cheese: $2.2275 (unchanged)

Barrel cheese: $2.0950 (unchanged)

Grade A NFDM: $1.2400 (down 0.5¢)

Butter: $1.8000 (down 1.0¢)

 

Today's expectations:

• Class III to open mixed

• Cheese & Dry Whey to open steady to slightly higher

• Class IV, Butter & NFDM futures to open mixed

 

Grain futures 

The grain complex turned its eyes – and then its feet – to the exploding soymeal market. December soymeal eclipsed its 200-day moving average, sending a wave of buying into the market and pushing the price up $26.60/ton. Continued freight issues and a concern about low protein content of U.S. and Canadian beans, as well as fresh end-user buying over the past few weeks, have all been pegged as reasons for the recent rally, which continued overnight.

Planting delays in South America are not easing concerns of market bears.  AgRural reported that 16% of the Brazilian bean crop has been planted vs. 10% a week ago and vs. 34% a year ago.

Harvest progress came in about as expected, with corn 46% harvested versus a 5-year average of 65%.  Soybeans are 70% harvested versus a 5-year average of 76%.  Weather is expected to cooperate again early this week.

 

Today’s expectation:

• Grain complex to open strong

 

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.