Nearby Class III futures lose ground on CME

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Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.

The Class III market started off yesterday’s session on a more positive note for the 2013 contracts with the Sept. and Oct. continuing the trend from last week to the upside.

The early action was mainly due to a report that the New Zealand company had exported four nitrate-contaminated consignments to China. It seems that none of these consignments made it into production and the nitrate was one that is common in cleaning products. The initial investigation is showing that the contamination came from a pipe that was not properly flushed after cleaning, leading to the contamination. This story, however, had a short-lived effect on the Class III markets coming into the spot session, as we saw a huge turn to the downside on lower offers for blocks and barrels. The Sept. and Oct. contracts both lost ground, closing down -.43 cents to 17.80 and down -.46 cents to 17.77, respectively. The 2014 contracts seemed to take everything in stride, as no major moves occurred through the session leaving them mixed anywhere from up +.03 for the April 2014 contract to down -.07 for the May and August 2014 contracts.

The stark moves down in the 2013 contracts may have also been a bit of a precursor to the July Milk Production report we received last afternoon. We are calling the report bearish as actual numbers for U.S. production and the 23-state production numbers beat estimates higher.

The spot session, while lower on the day for blocks and barrels, saw no trading ― just lower price offers. Blocks settled down 2 ¼ cents to 1.7550 and barrels settled down 3 cents to 1.7350, still keeping the spread just outside of the historic three- to five-cent range.

Eyes will be on today’s spot session to see if the declines in blocks and barrels continue in the wake of yesterday’s reports. The bear move domestically seems destined, the question is when, and will it come now or in a couple months post normal seasonal demand? With weather good for production and Asian demand for whey consistently described as weak, we might see the bear move sooner rather than later whereas we had originally predicted it for late year. .

Spot session results:

Block cheese: $1.755 (down 2.25 cents)

Barrel cheese: $1.735 (down 3 cents)

Grade A NFDM:  $1.795 (unchanged)

Butter: $1.36 (down 1 cent)

What a turnaround day for the grains! It appears we have turned a corner here and can expect some higher prices near-term for both corn and beans to start off the week. Export inspections for corn were lower than estimates, but both beans and wheat were higher, giving a lift to all grains across the complex.

Honestly, the markets were already in the throes of a rally before the report based on a warmer weather outlook and lack of moisture in the forecast for the week. Dec 13 corn closed up .22 cents on the session at $4.8550 after it took out resistance at $4.7600 and hit what we can only guesstimate were stop orders for those traders and funds that still had a number of positions to the short side. Later in the afternoon, we received the crop progress report which came in at 61 percent rated good to excellent overall this week vs. 64 percent the week prior. We will be looking for the market to continue its bullish theme again today, barring any news or events.

The $4.90 and $5.00 marks for Dec.13 corn are your next areas of resistance, so we will watch and see how the market reacts as we approach those levels.

Beans get their own paragraph today as they made a move higher over some key numbers that we have to talk about. Nov. 13 beans opened the night session on Sunday .02 cents over the 200- day moving average at $12.7000 and never really looked back. This is a big technical signal for strength and we expect the trend to continue to the upside for the near term. Add into that move the fact that export numbers were higher than expected and crop progress ratings came in at 62 percent good to excellent vs. 64 percent last week and you have enough keys in place to support a rally to the upside on bullish news. Nov. beans were up .44 cents on the day to settle out at $13.0300, and we saw funds add to their net long position throughout the day.

This morning, we look for corn to open 3 to 6 cents lower and beans to open 10 to 14 lower.

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