Class III futures rally on CME

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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.

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