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

It has been said before that ‘“if a futures market doesn’t fall on bearish news, we ought to be bullish about it.”  This is the environment we’re in for Class III and Cheese today. 

After opening as much as 30¢ lower yesterday on the heels of a bearish milk production estimate, nearby Class III futures powered back to unchanged ahead of spot, and then turned positive with another round of spot bidding.

We have a good supply of milk now – one that will likely keep growing – but that milk is going into a larger chunk of already sold product. Many manufacturers have sold a larger share of their production through year end, and that doesn’t leave a great deal of wiggle room for what continues to be rather impressive sales this summer. In other words, when we can convert a good deal of the fresh milk into fresh cheese that has not yet been sold – prices will come down. So this is a story of good domestic demand for the marginal production still available, which by many accounts is less than usual because of the demand from earlier this year.

Producers ought to continue to look at margins available and what makes sense to bring profit home to your dairy.  Prices are better than expected, and that is helping margins tremendously.  The market has been able to shrug off the latest round of bearish news, but we don’t know how long that will last. 

Cheese futures saw less activity than earlier this week, with strong prices for September-November, and somewhat weaker as we move into 2015.  To offer some perspective, however, cheese futures trading activity continues to push the bar on record open interest. We continue to hear that more resources are being put toward dry whey production instead of WPC-34 and expect that such a shift in production will keep a tidy lid on dry whey prices for now. In fact, we’d expect such a production shift to be a bearish factor for dry whey in the coming months.

Spot butter continues in its shock-and-awe campaign. We’ve said “$2.80 is possible” and we got 4¢ closer to that yesterday. NFDM has led and continues to lead the price decay. It paved the way higher months ago, and with reported sales in the low 1.20’s of late we see CME spot falling more.


August 20 spot session results:

Block cheese: $2.2500 (up 4.0¢)

Barrel cheese: $2.2550 (up 4.5¢)

Grade A NFDM: $1.3475 (down 1.75¢)

Butter: $2.7000 (up 4.0¢)


Today's expectations:

• Class III & Cheese to open firm

• Dry Whey to open mixed

• Class IV, NFDM & Butter to open lower/mixed


Grain futures 

The corn market is slightly higher this morning after trading lower, with little news for the market to digest.  Yields are better than last year, but corn is finding some support from a strong basis as ethanol margins remain good.

New crop soybeans posted new lows, as the weather maps are supportive for a good finish to the crop.

Ahead of large crops, federal regulators have called a hearing regarding two major U.S. railroad operators, on new concerns over issues that have delayed the transport of crops and  increased shipping costs for grain companies.


Today’s expectation:

• Grains to open slightly higher

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