Class III Futures
A down day in the spot market shook-up milk futures Thursday causing a massive sell-off in the front months. Nov – Mar contracts settled 11 to 73 cents lower. Cheese futures fell alongside Class III dropping 1.5 to 7.2 cents Nov – Mar. This front month fallout has helped the market return to a more normal level of inversion. Oct is nearly fully priced out at just below $24.00, and November is trading right around $21.00. The Q1 average settled at $17.32 Thursday, and the rest of 2015 is holding right around the $17.00 range.
Class IV Futures
The spot market showed traders that the three day rebound in butter was nothing but a dead-cat-bounce. Butter futures sold-off sharply in the front months bringing the Class IV market down with it. Oct butter settled down the limit of five cents and Nov – Jan contracts settled 1.50 to 3.05 cents lower. The Nov contract converged to settle at $1.90, but the forward curve is showing prices in the $1.74 - $1.76 range through 2015.
The 30 cent spread between cheddar blocks and barrels proved to be too much for the spot market. Sellers stepped in in full force Thursday bringing the market for cheddar blocks down 21.25 cents. A shortage of the 40 pound cheddar blocks sold at the CME allowed bidders to create this gap so a drop like this should not come as a surprise. The spread should continue to tighten over the next couple of weeks, but we could continue to see a decline as the market searches for support.
Disclaimer: The risk of loss in trading futures and options can be substantial. Past performance is not indicative of future results.