Editor’s note: This market commentary is provided by Curtis Bosma at HighGround Dairy in Chicago, IL.

Class III Futures

Tuesday’s Class III market experienced a huge trend reversal as contracts rejected the highs made Monday. A bearish Global Dairy Trade auction increased the spread between US and international cheddar prices. Even though the spot cheese market moved higher Tuesday it does not change the fact that US cheese is at a 37 cent premium to the Fonterra cheddar offered at the GDT auction.

The USDA made a significant (and extremely rare) revision to June’s Dairy Products Report Tuesday afternoon. The revision showed an additional 17.8 million pounds of cheddar in Idaho versus the previous release. This added to the bearishness of both cheese and dry whey futures. The Aug – Dec contract average for cheese settled at 1.9890 (DOWN 0.0238). Dry whey futures settled mostly lower on light volume with the biggest drop coming in December as the contract settled at 59.2500 cents (DOWN 0.8000).

Class IV Futures

Butter and NFDM futures continued to decline Tuesday bringing Class IV along with them. Class IV futures sold off as much as 52 cents in the front months. Butter futures dropped down to settle at a slight discount to the spot market.  NFDM futures moved sharply lower through April 2015. Aug ’14 – Apr ’15 contracts settled 0.330 cents to 3.725 cents lower. NFDM futures are still at a premium to the spot market, but without much buying interest in the spot market futures could continue to drop to bring the markets to convergence.

CME Spot

Buyers were active again during Tuesday’s spot cheese market.  The market for cheddar blocks and barrels both had two trades. The spot NFDM market had a pair of aggressive sellers looking for bids, but after dropping their offers five cents they allowed the market to settle. The butter session had a level day as four loads traded without a change in price.

Disclaimer:  The risk of loss in trading futures and options can be substantial.  Past performance is not indicative of futures results.