Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
The bull trend just won’t stop. Spot cheese prices saw blocks climb 2.75 cents, while the barrels surged 7.25 to a fresh 2013 high. There had been talk that the block market was snug due to export demand, but now it seems to be that milk is a bit tight all around. And with the significant discount on Class III relative to Class IV, the market is suddenly trying to play catch-up to get a few loads swinging back the other way. It seems very little spot cheese is available. And while margins are improved and look good on the forward curve, the milk production spigot can’t turn on overnight. It seems likely that a seasonal pullback in domestic demand can allow the bull trend in the spot markets to come to an end, but a price pullback in the short term is looking more and more remote.
Spot session results:
Block cheese: $1.9475 (up 2.75 cents)
Barrel cheese: $1.885 (up 7.25 cents)
Grade A NFDM: $2.03 (up 1.25 cent)
Butter: $1.64 (unchanged)
The grain markets traded to a mostly higher close in what looked to be a corrective spread type trade. On the day, March corn finished up 5.25 cents at $4.3650 and soybeans were 9.75 cents higher at $13.2950.
The market continues to be fearful of fund rebalancing on the corn market in particular as we head toward the end of the year, Friday’s CFTC report showed funds net short 120,000 contracts. Most of this concern should dry up by the end of the calendar year just prior to the stocks report and Jan. 10 S & D. December’s S & D tables will be released next Tuesday, but the market isn’t expecting any major changes. The market will be closely watching the weekly export sales report later this morning for further signs of Chinese soybean purchases, and to this point the spreads and basis activity is too reminiscent of a year ago when backwardation held until delivery neared and prices would spike. We saw that in December and our feeling is you have to continue to look for that until the market shows us otherwise.
We look for grains to open lower across the board this morning.
The trading of derivatives such as futures, options, and swaps may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Any reference to past performance is not indicative of future results. All references to futures/options trading are made solely on behalf of FCStone, LLC. All references to swap execution and bi-lateral swaps are made solely on behalf of INTL Hanley, LLC. FCStone, LLC will clear swaps when applicable. Swaps are only available to eligible counterparties. All observations of economic, political and/or market conditions are not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. and its subsidiaries and should be construed as market commentary. All recommendations to buy or sell a specific derivative or forecasting statements regarding market activity and the pricing thereof should be construed as a solicitation in any jurisdiction in where such an offer or solicitation would be legal. Proper context and guidance including but not limited to the particular trading objectives, financial situations and the needs of the intended audience were taken into consideration when this recommendation was prepared. Contact your account representative for specific advice to meet your specific trading preferences or goals. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. and its subsidiaries. Sources of information believed to reliable were used in preparing such observations, and no guarantee or representation regarding the accuracy of those sources has been made. INTL FCStone Inc. and its subsidiaries are not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material.