Class III futures should start the week strong

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Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

The Class III market managed to post a total of just 908 contracts as prices consolidated further on Friday. The 2012 contract months ended the week with prices settling between 2 cents higher and 20 lower, while the 2013 contracts closed between 7 and 20 cents lower. The fourth-quarter futures pack fell 16 cents to $19.98, with a total loss for the entire week matching at 16 cents. 

Recent price declines should give way to another bull phase in prices as the nation comes to grips with milk production concerns derived from high grain and feed costs, which have led to another jump in the monthly dairy cow slaughter rate. Two hundred and thirty-nine thousand head were brought to market in the month of July. This marks a 15.4 percent increase over July 2011. For the year through July, it marks an increase of 4.9 percent versus the same period last year. Cull rates should continue to remain strong as the results of the Pro Farmer crop tour should lead to another round of increasing grain prices. Class III futures should start the week strong, rising in sympathy to an expected grain markets rally.     

The grain complex ended the week with mixed results prior to the release of the Pro Farmer crop tour results. The Dec12 corn contract closed out the trading session with a loss of 6 ¼ cents per bushel to settle at $8.08 ½. The end of week sell-off in the corn market was attributed, in part, to profit-taking and liquidations by funds which lowered their total long positions to an estimated 314,000 contracts, a decline of 30,000 from Wednesday through Friday. The Dec12 corn futures posted a gain of just 1 ¼ cents week over week. The Nov12 soybean contract rose 16 ½ cents to $17.31 ½ Friday, while jumping an impressive 85 ¾ cents over the course of the week. The jump in the soybean market is a result of funds rolled from corn into the soybean contracts as concerns mount regarding both the U.S. and South American crops. 

The results of the Pro Farmer crop tour should cautiously reinvigorate the market bulls’ resolve to start the week for both the soybeans and corn. The national corn crop was pegged at 10.478 billion bushels, 301 million bushels lower than USDA’s August estimate. Pro Farmer put the corn yield at an estimated 120.25 bushels per acre (much more bullish than the production number), 3.15 bushels lower than the USDA’s estimate. The soybean was estimated to total 2.6 billion bushels versus the USDA’s estimate of 2.692. Soybean yield came in at 34.8 bushels per acre, 1.3 bushels lower than the recent USDA estimate. The Pro Farmer results should have market participants buying with both hands this morning, pushing the grain markets higher at the outset of the trading session.               

We look for corn to open 2 to 5 cents higher and for beans to open 18 to 22 higher.

Daily CME spot market prices:

Block cheese: $1.8525 (unchanged)

Barrel cheese $1.8025 (down 0.25 cent)

Butter: $1.80 (unchanged)  

Grade A NFDM: $1.665 (unchanged)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., INTL FCStone Inc., and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.



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