Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
It was a quiet open to the week for Class III futures, as volume was light early in the day. And when the spot market opened and closed unchanged, you’d expect that futures would have traded in a relatively tight range. However, that wasn’t the case at all as futures caught a bid and moved sharply higher ahead of the afternoon milk production report. Volume was light at just over 850 contracts and, interestingly, open interest was down slightly, but the late summer and fourth-quarter months have rallied back near their previous highs.
While the USDA “Milk Production” report was certainly bullish in comparison to expectations, we have to believe much of that has already been priced in to futures prices. Overnight, the market responded by trading 7 to 21 higher on solid volumes in the Q4 months, while Q3 months were mostly quiet.
Cheese futures were surprisingly inactive yesterday with the large gains seen in Class III futures. August futures traded 32 times, and the only other trading seen was a 2 lot in September. Prices, however, did rise in line with gains seen in Class III, closing steady to 0.049 higher on the day.
Scattered showers over the weekend were not enough to fend off the grain market bulls Monday. Solid coverage was seen in the western and northern parts of the Corn Belt, but southern and eastern areas which also badly needed rain didn’t get the coverage expected. When combined with warm, dry short-term forecasts, the market recovered sharply from Friday’s losses. Chinese dry weather also has the market fearful that their new crop corn demand will be stronger than currently expected and, in combination with a lower U.S. yield, this could drive prices higher.
Crop condition ratings after the close showed corn at 63% good to excellent ― down 3 percent on the week and soybeans at 56 percent G/E. Both of those estimates trail last year sharply, which makes it very tough for us to take these ratings seriously in light of the current yield estimates from the USDA. Weather and fund buying power leaves us believing end-users should have a portion, if not a significant portion, of new crop hedges in place.
We look for corn to open 8 to 11 cents higher and for beans to open 28 to 31 higher.
Daily CME spot market prices:
Block cheese: $1.615 (unchanged)
Barrel cheese $1.5725 (unchanged)
Butter: $1.5225 (down 1.75 cents)
Grade A NFDM: $1.2225 (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.