Snap-back rally for Class III, but macro picture bleak

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

What a difference a day makes. As specs seemed to exit (look at the Open Interest decline in nearby months) previously sold positions, we are still lower on the week. But in one swift swoop, we recouped Tuesday’s losses and then some. Futures were firm from the start yesterday, despite a spot session that began with offers in the block. Futures didn’t really blink much because barrels were bid at unchanged; thus while blocks fell well over a cent at one point, Class III futures maintained double-digit gains.

When the barrels went up and then buy interest showed up in blocks, Class III futures soared upward. With blocks settling well off their session lows and barrels up a half cent, futures buyers went to town thinking the bottom is in on cash. We suspect we’ll chop sideways a bit on futures for the real short term.

Cheese futures traded volume cooled off drastically after two extremely active sessions. Prices were strong but mostly on bids. The weekly USDA cold storage holding report showed a decrease of 1.1 percent week over week further supporting a bottom possibility. Foods interest is picking up slowly.

Overnight class III futures opened week with prices as much as 16 lower early on, but on light volume. By morning Class III had succumbed to the worldwide sell off pressure and we had traded just 32 contracts but rested as much as 18 lower.

We look for milk to open lower, but expect that spot will be somewhat stable at current levels with good interest from both buyers and sellers.

Compared to the outside economic issues, specifics in the grain markets are boring. Harvest is progressing and although yields are highly variable, there are many reports of better-than-expected results. There has been some rain in many of the driest areas of the country but much more is needed.

The Federal Open Market Committee announcement yesterday disappointed, but in advance of it the grains prices leaked slightly to the down side as is now seemingly the natural wont of the market. The overnight session was not-so-benign as the U.S. dollar surged, the Euro plunged and equities got slammed on the disappointing Bernanke news; grains got pulled along for the ride down.

Though China has been a significant buyer this year, August was not so pretty. China’s corn imports came in at 244,500 tons in August — down 43 percent from last year — with nearly all of that from the U.S. Chinese bean imports from the U.S. were under 200,000 tons in August, down 17 percent from last year. Chinese wheat imports hit 128,000 tons in August, up 44 percent on the year, with half coming from Australia and half from the U.S.

We look for corn to open 17 to 20 lower, beans to open 23 to 28 lower, meal to open 6 to 7 lower and for wheat to open 17 to 20 lower.

Daily CME spot market prices:

Block cheese: $1.7125 (down 3/4)

Barrel cheese: $1.6550 (up 1/2)

Butter: $1.800 (down 4 1/2)  

Grade A NFDM: $1.490 (unchanged)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.  

 


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