Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

Yesterday, the Chicago Mercantile Exchange (CME) spot cheese market experienced another day of selling pressure — in a big way, yet again. The 10.5-cent drop in the blocks and 11-cent tumble in the barrels took the weekly drop to 30 cents for the block and 22.5 cents in the barrel.

Blocks closed at $1.715 per pound.

However, that didn’t raise any eyebrows in the futures market as the second-quarter contracts finished higher on the day with April to June up nine to 19 cents. Other months, however, saw losses from August throughout 2012 of 2 to 10 cents.

As we expected, the gap between spot and futures closed, though the declines in spot were a bit larger than we thought they would be. Our feeling is the declines will be more corrective in nature and that buy side support should be very close now between 1.65 and 1.70 today. And, Friday should give us an indication of how strong that demand is going to be. Trade may now look to settle into a tighter trading range and trade sideways for a few weeks as we try to get an understanding of how much demand is there, not only for cheese but also the class IV products following the recent declines.

We look for prices to open steady to softer this morning with some pressure likely ahead of the spot session and for spot to be softer testing the 1.70 level. If we break decisively below 1.70, futures are likely to fall sharply, but if 1.70 can hold we’d look for futures to bounce back a bit late in the day.

In the grain trade, it’s becoming a tale of two markets as new crop corn fears a loss of acreage, while old crop corn seems panicked over the possibility of lessening demand.

We would expect strong buying in corn at the psychlogical support of $6, but with steep declines recently its nearly impossible to say. Look for the market to bottom out and begin to recover before aggressively buying remaining old crop needs. In new crop corn, we think getting long is the desired play via options. As we have oft discussed in the past few months, we think $6 is the fair value for new crop corn futures into the March 31 acreage report, and we’re now sitting very near $5.50. Thus far, no changes have been seen in the demand for grains and the same weather concerns still exist, especially the far-larger-than-normal snow cover in the northern corn belt. Soybeans, which have been at a discount to corn, are now looking to regain some ground. Our exports should be much more competitve in the coming weeks with the steep declines. We also are searching for attractive deals on new crop meal as the price has fallen back, though the fear of acreage allocation and strong Chinese demand remain firm. 

By this morning, prices were being supported by the softer dollar and remained stronger. We look for old crop corn to open up nine to 10 cents; new crop corn to be 12 to 14 cents higher, and soybeans to be up 20 cents.

Spot Markets:

                             Type of Load        Trades            Settlement        Change                Bids               Offers

Cheese

Blocks

4

1.7150

DOWN 10 1/2

1

0

Barrels

4

1.7400

DOWN 11

0

1

 

NFDM

Grade A

0

1.7900

UNCH

0

0

Extra Grade

0

1.8000

UNCH

0

0

 

Butter

Grade AA

0

2.1175

DOWN 1/4

0

1

 

Historical

Type

Year Ago

Month Ago

Week Ago

2 Days Ago

1 Day Ago

Blocks

1.2675

1.9400

2.0125

1.8800

1.8200

Barrels

1.2625

1.9025

1.9800

1.9125

1.8500

Butter

1.4500

2.0550

2.1200

2.1200

2.1200

 

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.

Source:  FCStone/Downes-O'Neill