Class III futures close down on CME

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

The slide lower continued yesterday with Class III settling anywhere from +4 to -12 on the day. Although Class III did end the day weaker, we did not see the types of large double-digit declines seen as of late and prices closed well off their lows. 

Currently, the Class III July–Dec pack is trading near $18.54, roughly 30 cents off its May high of $18.84. That being said, do not expect the move lower to be over as the second half still looks poised to retest recent lows ($18.54) made mid-May.

From a seasonal perspective, milk production generally peaks in May. Combine this with declining international prices, a stronger U.S. dollar, favorable New Zealand weather, more milk going into manufactured products, lower export demand, and healthy inventory levels, and you have quite a few factors supporting bearish momentum. All of this we have mentioned and we feel a bit repetitious; unfortunately, the market may be “stuck in the mud” until the weather and demand picture become a bit clearer. Currently, four counties in eastern Idaho are experiencing drought conditions and California’s snow pack is below average, though not critical. Weather maps show 90+ degree heat across the southern U.S. including AZ, NM, TX and FL for the next week. And, although the short term fundamental picture may look bearish, some excessive heat and dryness could once again have us burning through stocks. Short-term, we expect the market to continue on a downward trend. That being said, it may make sense to examine option strategies during this dip to protect against such a weather event.

Spot Session Results

Block cheese: $1.76 (unchanged)

Barrel cheese: $1.73 (unchanged)

Grade A NFDM:  $1.68 (unchanged)

Butter: $1.565 (down 3 cents)

In the grain complex, December Corn settled up 10 ¼ cents to 530 ½, while Nov Beans settled up 18 cents to 1238 ¾. Ethanol production figures, along with new crop sales to China, helped fuel this surge. There are roughly 15 percent of corn acres unplanted, which may spur conversations as to whether beans could replace. Soybeans traded higher today despite weakening in the old vs. new crop spread. Reports of some soybean movement out of both the domestic producers as well as Argentina have seen basis retreat a bit of late and the spreads will need to be closely watched. Export sales released later this morning will likely play a big role in where the spreads, particularly July/Nov soybeans, move in the coming sessions.

This morning, we look for corn to open steady to 3 cents lower and soybeans mixed from -3 to +2. 

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