First time in three months barrels eclipse $2

Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

Class III volume started slow yesterday, but after a spot session that saw barrels uninhibited to the upside and blocks that were resilient, going from a penny lower to close higher, buyers were forced to propel Class III futures further to the upside in what really felt like a blow off top nearby. Barrels are tight but the fact that the spread remains inverted with barrels over blocks, and that blocks continue to move upward to keep tabs on the barrel price, has the market in nearby bull form.

Final holiday orders are coming in and those buyers on those last orders are getting hit hard on price; this short term disruption to the supply and demand balance is unlikely to last past Turkey Day which isn’t far off at this point.

The futures market continues to price upward only the very close futures months as the months of February and beyond only move up in the slightest of sympathies. The world is still flush with milk and demand passed holidays is suspect at best with lingering concerns over economic uncertainty around the globe. Just last week in China, a high level executive bluntly told a member of our team he didn’t believe the Chinese government growth statistics and felt that India had greater potential over the next 5 years.

Europe is far from out of the woods and a firming dollar is still not good for dairy as most global dairy trade occurs in U.S. dollars and regardless of whom they buy product from or where they buy it from, local currency must still be converted into U.S. dollars to make those purchases; cheap dollars allow them to have greater buying power. We concede the short term strength as undeniable and hence the long December and short February positions continue to work well but we also support the current building of short Q1 positions. 

Class IV volume was again light with just 5 contracts traded. Prices on packs regained last Friday’s declines as the market was likely “relieved” and/or surprised by the cessation of spot butter price declines. 

Cash settled cheese futures volume came roaring back from Friday’s lapse as they traded 195 contracts. Prices yesterday moved well in tandem with Class III’s lead. The barrel strength means that reduced basis risk is strongly present in CSC right now and hedgers are turning here. 

Overnight milk started out firm in nearby months and was 1 to 5 lower in deferreds. By morning, 83 trades took place with prices steady to 3 lower. Nothing traded farther out than February.

We look for milk to open higher.

Grains largely chopped around yesterday with beans showing the strength.

Corn prices sagged throughout the day and the chart is looking rather sluggish to the downside. The corn harvest was reported at 93 percent this week vs. 87 percent last week, 98 percent last year and 82 percent on average.

Beans were reported 96 percent harvested vs. 92 percent last week, 98 percent last year and 94 percent on average.

Winter wheat was reported 50 percent harvested this week vs. 49 percent last week, 46 percent last year and 56.8 percent on average. Look for outside markets to pull the grains in the short term and for technical trading to give it a push. 

We look for corn to open 2 to 4 higher, beans to open 11 to 14 higher, meal to open 3 to 4 higher, and wheat to open 1 to 3 cents lower this morning.

Daily CME spot market prices:

Block cheese $1.960 (up 1 cent)

Barrel cheese $2.0075 (UP 2 3/4)

Butter:  $1.74 (unchanged)  

Grade A NFDM: $1.4375 (UP 1/4)

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