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

Class III was largely mixed during Monday’s sideways trade that registered just over 1,000 contracts by the 4 p.m. close. 2013 contracts were strong overnight Sunday, but lost the bid by the opening bell and turned lower during the spot session. Block cheese was offered ― and traded ― at the exchange for the first time this month. Barrels remained silent, but block cheese fell a penny to $1.80 and recovered to on a total of seven trades to leave the spot market unchanged on the day.  

There is an overwhelming reluctance to worry in these markets right now. Things are quiet. Milking weather is good one week, bad the next with a net effect of only very moderate growth ― but growth. Developing Q4 domestic demand is being played down.  And the futures trade is fine to let the spot action lead from a safe discount. 

While it’s not exciting, the interesting part to pay attention to is the futures market structure that is developing. It’s a bullish one. With spot at a premium to the futures market (Oct and beyond), the market has become backwardated (inverse to cost-of-carry). It’s flirted with this over the past month or so, but we think this forward curve structure is telling market participants what the news hasn’t ― demand for U.S. cheese by both domestic and international buyers will be better than we expect over the next 30 to 60 days.

Spot session results:

Block cheese: $1.81 (unchanged)

Barrel cheese: $1.80 (unchanged)

Grade A NFDM:  $1.815 (unchanged)

Butter: $1.44 (up 1 cent)

Grain and soybean futures finished modestly lower across the board to start the week as the trade is balancing what remains a mostly bullish weather outlook with good yield and quality reports from southern Corn Belt harvest. 

Soybeans looked to have topped technically, but some 40 percent of Midwest beans remain under moisture stress. So we look for moderate volatility heading into Thursday’s USDA Crop Report. Generally, however, there is a reluctance to add too much risk premium to corn and beans ahead of more yield data.  We recommend having some Q4 coverage for corn heading into this report. 

This morning, we look for corn to open mixed -3 to +3 cents and soybeans to open 6 to 12 lower.

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