Markets: Bulls continue to win Class III tug-of-war

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

Bulls continue to win the Class III tug-of-war challenge. September futures easily cleared the $19 per cwt. price resistance without much of a fight. September led the daily gains and settled at the highest price across all Class III contracts, +29 cents @ $19.17. The third quarter finished the day +14 @ $18.77 per cwt, while the 2013 contracts on average finished +9 @ $17.76 per cwt. The front-month August contract, however, failed to add to last week’s gains, seemingly content with pricing more than $1 of premium to today’s spot values. 

Further advances from the cheese market are not out of question, but the volatility that would ensue if cheese were to break is keeping front-month buyers somewhat honest. With most of the Class III producers across the nation watching crop conditions deteriorate in real time, sell paper has been extremely hard to muster up. Most producers that sell a portion of their milk in Chicago have already done so. This is not to say that it wouldn’t behoove other producers to let go of their milk, but at the moment it appears as if a paper shortage has buyers scrambling for anything they can get their hands on. 

A wise man once told me, there is never a shortage of milk, just a shortage of cheap milk. With corn heading to $8 per bushel and dairy prices on the run, shortages of cheap product are to continue. Expect volatility to ensue in coming sessions.

It was another typical Monday over the past five weeks, as corn surged higher yet again. Dec corn closed up 32.25 cents at 772.50; beans led the way closing up 38 cents at 1590.50 in November, while wheat played along gaining 36.75 cents to 884.50.

The supply side remains the story. And while 30 to 40 percent of the Corn Belt is getting rains, it’s not significant enough coverage to reverse the course of the market for now. Bulls were reinforced after the close as crop condition ratings feel more sharply than expected. Corn is now rated 31 percent good/excellent, down 9 percentage points from last week, while soybeans are rated at 34 percent, down 6 percent from last week. Both the corn and soybean crops are now the lowest-rated crops by far since the 1988 drought. Little relief is in the forecasts, though some sporadic rains should hit the corn belt toward the end of the work week, offering a sliver of hope.

Current trader estimate of corn yield at 140.2 bushels per acre, but downside potential is 130 bushels per acre if conditions persist.

Daily CME spot market prices:

Block cheese: $1.705 (up 2.5 cents)

Barrel cheese $1.70 (up 2 cents)

Butter: $1.555 (up 0.5 cent)  

Grade A NFDM: $1.27 (up 0.5 cent)

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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