Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Class III futures continued to track to the upside yesterday, putting in gains across the majority of the sector. The October contract was the leader yesterday, closing up .41 cents at $18.14. We did see a couple of contract months, August 13 and September 14, close down .01 cents on the day to $17.89 and 16.92, respectively.
Technically, we have run up against some resistance at these levels, and we will be watching closely over the next couple of sessions to see if this move is indeed a market reversal or just another in a series of bull bounces in an overall bear market. With trade still on the heels of a bullish Cold Storage report, and not much in the way of reports this week into an upcoming holiday weekend, one would expect to see volume tail off as the week progresses. The next two trading sessions should give us the best idea of direction for the market moving into the month of September.
Spot cheese was the catalyst for both the cheese futures and Class III markets yesterday as we started off the week with some trading and more bidding for product than we have seen in some time. This leads one to believe that those players that had been sitting on their hands last week are looking to get off of the bench and into the game, as prices are still around the 170.000 mark.
Whether it is to square off inventories or pick up more physical product to meet demand as the holiday looms is not something we can know just yet. However it does feel as though there is a definite need for physical product right now on the heels of last week’s Cold Storage report, and that could continue to propel these markets upwards over the coming days.
Spot session results:
Block cheese: $1.695 (up 2.5 cents)
Barrel cheese: $1.705 (up 6.5 cents)
Grade A NFDM: $1.80 (unchanged)
Butter: $1.395 (unchanged)
In the grain complex, it was not a day for the faint of heart. Right out of the gate, we saw gap openings for corn, beans, meal and wheat in Sunday’s night session. With a minor heat wave over the Midwest, lack of rain in the forecast, and the Pro Farmer numbers coming in well under the USDA’s last report, we saw fresh highs for the entire complex. Some contracts even traded up their limits before moving down into the close. The news, while being bullish, should not have carried the markets as it did. But we are really just in weather trade right now, and big moves tend to be overdone quickly alongside major short positions with stops above the market.
This morning, we look for corn to open 2 to 3 cents lower and beans lightly mixed.
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.