Editor’s note: This market commentary is provided by Dave Kurzawski a risk-management consultant with FC Stone/Downes-O’Neill, Chicago, Ill.

Class III futures traded a quietly lower 1,300 contract day in the face of higher Chicago Mercantile Exchange spot cheese prices Thursday. CME spot blocks notched up 1.25 cents to $1.9125 while barrels rose a sharp 6.75 cents to finish at $1.90. All that strength in CME spot was not enough to inspire traders to buy aggressively as nearby Class III futures remained under pressure the balance of the day. Second half remained well supported but is best characterized as quietly mixed yesterday. With a solid move higher for cash prices, futures now are pricing a steep discount. Early this morning however, buyers have stepped in to push Class III prices 0.10 per hundredweight to 0.25 per cwt. higher.

With CME spot cheese moving higher again yesterday but futures moving lower questions surrounding the sustainability of cash prices are running rampant. Futures markets take breathers and get tired, but they also respond to pricing influences. They didn’t yesterday. It should give us pause as to why Class III futures — with Class IV clicking over $20.00 per cwt in May to July and CME spot cheese on a continued ascent — would finish lower. 

Perhaps it was a shallow, corrective break. But we also hear anecdotal talk of aged cheddar trading below current CME spot values when normally they would be at par or moving slightly ahead.  If it is true that aged cheddar is moving at discounts to CME spot, then we’d have to expect some cheese to show up here in Chicago today or in the very near future. Look for a firm market early today.

NFDM continues to be well-bid after an early week reprieve. Strong Class IV prices continue to pull milk into production, which continues to tighten the prospect of getting a load of extra milk in the country. Dry whey prices have been keeping a discount to what we hear is a 60 cent per pound plus trade in the country. Look for a firm tone to these markets to start the day.

Grains ran into a U.S. dollar headwind yesterday. Long overdue for an upward move and now fueled by more Egyptian unrest, the dollar has moved up sharply yesterday and again overnight.  Look for a move higher on the momentum of this trend as those who are short on the dollar get stopped out of their positions. Corn is called to open 1 to 2 lower while beans are called 2 to 3 higher.



2/10  Class III Futures:   Volume:  1,360 Open Interest (OI) Change:  +257  Total OI:  37,138
2/10 Class III Options:  Est. Put Volume: 1,768 Total OI:  32,011  Est. Call Volume:  431  Total OI:  25,454
2/10  Spot Markets:   Block Cheese $1.9125 (UP 1 1/4 , 2 Trades); Barrel Cheese $1.9000 (UP 6 3/4, 0 Trade)
Butter $2.1000 (UNCH, 0 Trades); NFDM: A $1.7725 (UP 3 1/4, 3 Trades), X $1.7600 (UP 4, 0 Trades)
2/10 Other Dairy Futures Volume:   Butter:  81  Dry Whey:  53  NFDM:  78   Class IV:  270  Cheese: 117  International SMP:  0 

2/10 Individual Class III Futures Prices, Change, Volume & Open Interest
Feb 11     $16.70               UP 1              Vol:   128    OI Change:     DOWN 47
Mar 11     $18.55               UP 1              Vol:   345    OI Change:     DOWN 22
Apr 11     $18.34               DOWN 8         Vol:   208    OI Change:     UP 52
May 11    $17.85               DOWN 8         Vol:   150    OI Change:     UP 28      
FEB-June 2011 Avg:          $17.79              DOWN 0.02/cwt
July-Dec 2011 Avg:           $16.68              UP 0.01/cwt
FEB-Dec 2011 Avg:           $17.20              DOWN 0.02/cwt


These data and these 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., International Assets Holding Corporation, 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.

Source:  FCStone/Downes-O'Neill