Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Class III futures closed out the final trading session of last week posting gains throughout the 2013 contracts, while finishing mixed within the 2014 contracts ahead of today’s milk production report for the month of July.
Bull nearby and bear deferred spreads are in technical fashion these days. The August through December contracts added between 1 and 19 cents, while the 2014 contracts prices ranged between 10 lower and 5 higher, as less than 900 total trades took place. The push higher with the spot block trading session helped to spark the buy interest within the market, though also provided the cap to that rally by settling just 0.7500 cents higher after sitting as much as two cents higher prior to the session’s end.
Market participants will look to this afternoon’s milk production report to a measure of guidance towards price action in the near term. The Class III market has held a bearish tone of the recent weeks and months, yet today’s report should provide a sense of the extent of milk lost in early July as the heat wave scorched much of the nation’s milk-producing regions for days and weeks. Our estimates call for a 4.3 percent decline month-over-month for the total U.S and a 4.1 percent decline for the top 23 states. A production decline greater than expectations could ignite a bull run in the Class III market and push near-dated contracts above the $19 mark.
Spot session results:
Block cheese: $1.7775 (up 0.75 cent)
Barrel cheese: $1.765 (unchanged)
Grade A NFDM: $1.795 (unchanged)
Butter: $1.37 (down 1 cent)
The markets closed out Friday’s trading session with all the grain contracts finishing in the red, giving back some of the gains posted the day prior on the FSA acreage data. The September corn contract fell 7.75 cents lower to finish at $473.75, while the December corn contract fell 8.75 cents to 463.50. The September soybean contract finished out the week at 1283.25, down 5 cents as the November soybean contract shed 6.25 cents to finish at 1259.25. The marketplace spent last week trying to decipher the results of the USDA Supply and Demand report released last Monday and will have additional expectation reports out this week to play against weather forecasts and demand projections.
Overnight, grains surged higher once again on weather concerns and a solid attempt at corn to set a technical bottom.
This morning, we look for corn to open 6 to 9 cents higher and beans to open 18 to 22 higher.
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.