Editor’s note: This market commentary is provided by Dave Kurzawski, risk-management consultant with FC Stone/Downes-O’Neill, Chicago, Ill.

Speculative traders continue to shed long positions in commodities overnight on the news of a massive, record-breaking earth quake off the shores of Japan and the ensuing potential for tsunami damage is plastered on the news wires this morning. In the Middle East, tensions are heating up with protests in Saudi Arabia. Between natural and man-made disasters, speculators who normally welcome uncertainty are taking a different tact. Investors want to take their money and go home when it comes to many commodities and that is providing fresh selling almost regardless of other fundamental news.

Dairy futures tend to be insolated to some degree from vicious outside market activity, but the path of least resistance on Class III has been downward over the past week or so. We’ve had small bounces, but they have been taken as rallies to sell. Technical indicators are weak and prices are discounted. Look for a mixed trade early.

The talk is about a 20-cent decline on cheese. But just as no one knows where the top will be to the penny, be cautious about hopping on the $1.80 cheese bandwagon. Futures and cash markets often overshoot what seems clearly to be a reasonable price level. If we can get to $1.80 on cheese, we can get to $1.60 for even a short period of time. 

Butter continues to be well-supported as the market remains tight. On the flip side, 22 loads of butter have exchanged hands here this week, so someone has butter and they’re willing to sell it.  Furthermore, what looks firm today is vulnerable to change after we work through Easter orders.  That is the risk going forward. Look for butter futures to trade mostly mixed early today.

So, the outlook from here is more short-term bearish, but longer term bullish for dairy prices.  While we continue to see strong appetite for dairy products, expectations that such buying prowess can continue unabated may be short-sighted. Imbalances will likely continue throughout the year, but for now the markets feel softer than they were just a few weeks back.

Grains are open and their off their lows this morning, but speculators are looking to take profits or cut losses or just step aside. Keep in mind fundamentals are still tighter than normal state and will leave risk premium in the market until a more clear picture of yield and acres can be determined (June-July), but the trend is turning lower day by day. As that happens and confirms a pattern, rallies are to be sold — not bought.


3/10  Class III Futures:   Volume:  1,951  Open Interest (OI) Change:  +242  Total OI:  37,042
3/10 Class III Options:  Est. Put Volume: 1194 Total OI:  38,192 Est. Call Volume: 1189  Total OI:  27,941
3/10  Spot Markets:   Block Cheese $2.0125 (UNCH, 0 Trades); Barrel Cheese $1.9650 (DOWN 1 1/2, 4 Trades)
Butter $2.1200 (UNCH, 6 Trades); NFDM: A $1.8150 (UNCH, 0 Trade), X $1.8025 (UNCH, 0 Trade)
3/10 Other Dairy Futures Volume:   Butter:  12   Dry Whey:  67  NFDM:  30   Class IV:  38  Cheese: 34  International SMP:  0 

3/10 Individual Class III Futures Prices, Change, Volume & Open Interest
Mar 11    $19.60                DOWN3                Vol:   93                OI Change:     UP 68
Apr 11     $17.87                DOWN 38            Vol:   567              OI Change:     DOWN 29
May 11   $16.88                 DOWN 35             Vol:   444             OI Change:     UP 6
June 11   $16.66                DOWN 24            Vol:   264             OI Change:     DOWN 10 
March-June 2011 Avg:           $17.75                 DOWN 0.25/cwt
July-Dec 2011 Avg:                   $16.89                 DOWN 0.01/cwt
March-Dec 2011 Avg:              $17.24                 DOWN 0.10/cwt


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.

Source:  FCStone/Downes-O'Neill