Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Class III futures pushed higher once again as total trading volume increased to 974 contracts. After overnight strength, when the spot session traded higher on both blocks and barrels, the bull run was kept fully intact. The 2012 contracts settlement prices ranged from two cents lower in June to 32 cents higher in September. The July through October contracts benefited the most from the bullish move, settling between 29 and 32 higher. The July to October futures pack closed out the day at $17.32, a price level not seen since Jan. 17 of this year.
The surging grain markets, coupled with the higher temperatures, forecasts of 95 to 100 degree weather in Chicago during the outlook conference, are offering fundamental support to what seemed to be a technically driven rally. We will be keeping our attention tuned to the weather reports on the lookout for continued heat which may trigger a supply shortage. Accordingly, the late summer months are our highest contracts on the forward curve.
The U.S. dollar was higher, crude oil was down nearly 2 percent and the Dow was off triple digits. So, where was corn? Limit up of course. December gained 40 cents to close at 594 and synthetics had it trading near $5.97 at the close. Limits will be expanded to 60 cents for Tuesday. Soybeans didn’t close up the limit but did gain 50 cents, closing at 1425.50.
Six- to 10-day and 11-14 day weather maps are red (hot) and brown (dry) and we are already working with less than needed moisture levels. Since the crop was planted early in most areas, pollination is likely to be getting under way by July 1 and there are no signs of rain yet.
On Monday, the USDA crop condition ratings continued to plummet, showing corn down 3 percent this week to 53 percent good/excellent and soybeans down a massive 7 percent to 56 percent good/excellent. Illinois and Indiana led the sharp declines falling by 15 percent and 10 percent, respectively, on corn and by 12 percent in each state on soybeans, verifying the market’s concern of extreme dryness. With the report coming up on Friday and the corn market having rallied near 20 percent from the recent lows, we’d be looking to purchase short-term put options to protect against any gains on forward contracts or futures purchases.
We look for corn to open -1 to 4 cents higher and for beans to open 3 to 8 lower.
Daily CME spot market prices:
Block cheese: $1.64 (up 1.5 cents)
Barrel cheese $1.66 (up 2.5 cents)
Butter: $1.52 (unchanged)
Grade A NFDM: $1.2275 (unchanged)
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