Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Sometimes the Class III trade makes the late discussions of Sarkozy, Merkel and Papandreou look easy. Volume and open interest spiked Thursday along with prices from November through January as the trade seemed to collectively wake up to the firming spot cheese market this week.
The somewhat delayed reaction started early Thursday morning as December led the way higher trading. Nearby contracts posted 10 to 30 cent gains into the spot session mid-morning, which again found ample buy interest and more strength. Blocks closed up 4.50 cents to $1.83 while barrels tacked on another 4-cent gain to finish at $1.87, which catapulted November through December futures with December again leading the way and trading as much as 75 higher (limit up) briefly before consolidating to a close of 63 higher.
When the dust settled not only did December lead the price move, but nearly half of Thursday’s 2,127 trading volume was reserved for the Christmas contract.
We reported that barrels were tight and they are. But we also reported that we thought the futures response over the past few days was weak in nature and foreboding for the spot prices. Today we were proven wrong with this large — albeit narrow in timeframe — price spike. Typically markets have a “blow-off” trade to mark the end of a period of firming prices. Will we look back at Thursday as an emotionally driven blow off top for 2011 contracts? It is too early to say for sure, but producers who have milk left to sell for the balance of this year ought to use this sharp rally to market any remaining milk for the balance of the year.
We expect October Class III to be announced at $18.03 this morning and Class IV to be announced at $18.41
Cheese futures followed the bullish tone of the day trading 237 contracts between unchanged at .038 higher (December closed up .056 cents on bids only).
The Class IV market took a trading reprieve Thursday posting only two contracts trading and finishing unchanged across the board. It is safe to say the Class III/cheese markets garnered the most attention and we suspect that will be the case again to start this morning.
Overnight trading volume was 31 contracts by just after 10 p.m. with prices mostly higher March was the lone lower month down 12 while other contracts were steady to 12 higher led by Nov. By this morning 76 contracts have traded and while prices remain mostly higher gains have moderated with November up 5 the biggest mover.