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

Class III Futures

Tuesday was a very bearish day in the dairy complex. A negative Global Dairy Trade auction combined with more downside movement in the spot market caused a massive sell-off in milk futures.  Class III futures saw a strong volumes stretching throughout 2015. The Globex platform had an estimated 1,959 trades, and about 400 of those were in 2015 indicating farm selling was present. The September contract settled at $20.60 (DOWN 0.52) but continued to work its way towards the lower limit during the afternoon session. After the long bull run seen in Class III, the recent trend may indicate futures have been overpriced.  We still view this movement as corrective in nature because Class III contracts still have technical support in the $19 - $20 range through the end of the year.

Class IV Futures

After a bearish GDT auction result along with a down day in the spot market, butter futures traded down the limit August – November. NFDM futures sold off through the rest of the year following yet another lower session in the spot NFDM market.  The July – September contract average settled at $1.7681 (DOWN 0.0177). Class IV characteristically traded downward along with these two markets settling 16 to 36 cents lower through the end of the year. The price of butter still seems to be a big question mark as domestic prices remains sharply above the international market.  The persistent butter shortage in the U.S. has held prices higher, but as other countries enter their production seasons, the spread between the two will likely narrow.

CME Spot

All three markets made bearish movements Tuesday. The cheddar block market saw a bit of buying interest as five blocks traded at unchanged before sellers dropped their offers down to sell three more blocks. The spot NFDM market continued its downward trend Tuesday, settling at $1.7700 (DOWN 0.0125). They are now at about par level with NFDM futures. The spot butter spike seen Monday was short lived as offers came out well below the market on the open Tuesday. Spot butter is still at a premium to spot, but after a bearish day in both markets the spread was unaffected.

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