Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Class III was off to the races yesterday, settling anywhere from +.10 to +.55 on the day, with July rallying nearly 60 cents before closing just off its highs. Buoyed by a rally in spot, contradicting the last four weeks of lower trade action, the 2013 contracts all settled above $18.00 cwt. with the July-Dec pack now trading near $18.60, off its recent 90-day low of $18.38. Technically, we might very well have put in a bottom.
Yesterday’s rally was strong and widespread on strong volume, nearby months were marred by a drop in OI indicating short covering with strong increased OI in the deferred contracts. We suspect more short covering is to come should the spot market remain firm. This has been a declining market for over a month now, but anticipated weather shifts in California might change the flow of the tide. Central Valley California is headed for strong heat as the National Weather Service issued warnings of extreme heat on Friday and Saturday, June 7 and 8 where temperatures are expected to exceed 110 degrees. This is a stark reminder that summer is upon us and with that the potential for production problems due to excessive heat.
Spot Session Results
Block cheese: $1.735 (up 2.75 cents)
Barrel cheese: $1.73 (up 4.5 cents)
Grade A NFDM: $1.685 (up 0.5 cent)
Butter: $1.54 (unchanged)
In the grain complex, Dec corn settled down 10.75 cents to 542.50, while Nov beans settled down 16.00 cents to 1300.00. New crop values collapsed on improved planting weather, some speculation of slowing demand, and ethanol use reaching a plateau. Strong South American soybean shipments did not help in terms of price support in beans.
With that being said, weather will be a driving factor in the short term. With a majority of corn in the ground, too much rain or too much heat could cause some issues as far as abandoned acres, replanting and switch-over acres.
New crop is once again gaining on old crop and probably has some room to run. The Goldman roll will begin in earnest this Friday. As mentioned previously, at these levels one may want to explore option strategies to mitigate any adverse price swings; end-users of corn should be thinking along the lines of min/max’s around 4.70 min and 6.10 max. Grain prices have come under some pressure this week, but despite true weakness in equities and ethanol the grain markets have not totally capitulated. It won’t be easy to get cheap corn prices ― we’ve said that all season. Once we are passed planting concerns, we’ll have more weather and crop condition concerns. So even if we do get cheaper, it will likely be amidst tense price action.
This morning, we look for corn and wheat to open mixed from -3 to +3 cents and soybeans to be steady to 6 lower.
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.