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

Class III futures ended the month on a modestly lower note Monday.  With the spot market price left untouched, there was little impetus to move futures prices either way decisively.  Still, prices managed to drift lower on 1,130 contracts as traders shifted focus to weaker commodity markets in general.  Helping to mix the “risk-off cocktail” was Japan’s Ministry of Finance, who began selling Yen currency as a means to improve export business in the struggling Japanese economy.  The subsequent turn higher on U.S. dollar weighed on commodities across the board.  

Taking a step back, Class III/Cheese market sentiment to start November is not much different from that during the beginning of October.  The ebbs and flows of domestic holiday demand continues to dictate short-term price movements, while the longer term supply-demand picture remains murky at best. Commercial buyers do not appear to be done filling their needs for the balance of the year, so we expect that if spot price declines it won’t be without some supportive buying.  Meanwhile, producer selling is still scarce given the sustained high price of feedstuffs.

Last week’s Commitment of Traders Report didn’t show much in the way of a shifting tide from the previous weeks in October, but it continues to show growth in the “Commercial Long” category. Combined futures and options positions from commercial reporting traders shows the buyers are long 30,150 contracts to the sellers 26,176 short positions. Speculative money remains net long too, but the skewing of the commercial category has caught our attention and will be watched closely in November.  In 2009, commercial long positions far outweighed commercial shorts.

Cheese futures finished the month Monday steady to .027 cents lower on 77 contracts; 2012 contracts garnered the bulk of the attention. We look for a mixed trade for cheese to start the month.

Class IV futures gets the award for most volume traded Sunday night.  Before 10 p.m. central time, 180 contracts had traded at .14 cents lower in the January to June timeframe. The 14-cent loss actually brings the Class IV price better in line with the butter/powder pricing for those months, but it was unfortunately nearly all of the class IV volume as just five additional trades occurred throughout the day all in April of 2012.

We look for milk to open steady to .05 higher into 2012.

Grain prices under sharp pressure yesterday as the world remains nervous over the European Union bailout fund, the U.S. dollar jumped sharply due to the EU and Japanese intervention and the MF Global news dominating the talk on CNBC yesterday. Much of the talk revolved around potential grain liquidation from funds as a result of the bankruptcy but that didn’t seem to be the case yesterday as corn prices were the strongest of the grains closing down 8 cents at 647, soybeans were down 9.5 at 1207.5 and wheat actually closed the softest of the three down 16.25 to 628.25 despite funds being net short of wheat.

Some liquidation may still come about but it certainly was far from evident in the price activity yesterday. The markets focus will likely remain two fold for the coming sessions focused on the strength in the dollar and the potential that has to continue to curtail export demand as well as watching for private production estimates this afternoon from FCStone and tomorrow morning from Informa.

We look for corn to open 11 to 13 lower, beans to open 14 to 16 lower, meal to open 3 to 5 lower, and wheat to open 10 to 12 lower.

Daily CME spot market prices:

Block cheese: $1.7725 (unchanged)

Barrel cheese $1.7675 (unchanged)

Butter: $1.88 (unchanged)  

Grade A NFDM: $1.43 (unchanged)

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