Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.

The Class III trade acted sluggish again Thursday as the market consolidated recent gains. 

Seven hundred and eighty one contracts traded hands, and open interest rose by just five contracts in what we believe is a developing short-term top. The block market, having risen 3.25 cents since Monday, has supported the futures market for the past few days, but market gains are losing steam. Cheese futures, too, have been propped up by recent spot market activity, but also finished mixed Thursday in a lackluster trade that posted volume at 201 contracts.  

The overbought technical conditions on nearby Class III and cheese futures are not the only headwind. Barrel prices have declined 1.5 cents over the past two days, while there has been increased chatter of slowing block sales above $1.80. Perhaps this is some holiday buying that needs to get done due to moderate fresh cheese tightness, but we do not hear of widespread tightness on 30 day or younger block cheese. Furthermore, we expect older inventories are more than adequate for the time being. There is a vulnerability to sell side pressure and ultimately a corrective move downward for both Class III and cheese futures in the short-term.

Spot session results:

Block cheese: $1.8475 (up 1.25 cent)

Barrel cheese: $1.765 (down 1.25 cent)

Grade A NFDM:  $1.8525 (up 0.25 cent)

Butter: $1.50 (down 2 cents)

Corn edged slightly higher yesterday, while soybeans and soy meal pushed higher fueled in part by technical support. The lack of USDA news lately has the trade on edge for direction, while some rumors float around about an increase in Chinese buying during the government closure. Still, corn and to some extent soybeans are dealing with heavily bearish market sentiment. With ideas of increasing final U.S. yields and a drier, harvest-friendly weather pattern for the next two weeks, it’s hard to think that prices will rise. It’s difficult to believe that recent rumors of Chinese buying will have much of an impact against what looks to be a corn crop with average yields around 159/bu. There’s plenty of good reason to be negative market prices, but it’s also dangerous when the boat is tilted too far to one side. And we say the day has arrived. End-users ought to own some coverage (calls, futures, or physical) with the market still sub-$4.50.

Follow-through buying from yesterday continues this morning with corn expected to open 1 to 4 cents higher and beans 5 to 10 higher.

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