Class III futures anticipate today's milk production report

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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.

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