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

What goes up must come down, and vice versa. That’s the story yesterday with both CME spot cheese and butter. After block cheese slid nearly three cents last Wednesday, yesterday’s trade saw multiple buyers step in to grind spot block and barrel cheese prices higher yesterday. And in yesterday’s CME spot butter session, prices declined another 14 cents to $1.53, down 25 cents over the past two trading days and nearly 65 cents for the month; and we’ve still got one day to go in November.

Yesterday we posed the question as to whether the bull run in butter was over and with another sharp decline in spot prices, it appears $2.00 butter has seen its day for a while. Contacts suggest there is more butter heading to the CME this week and prices haven’t yet found support. Without a buyer in sight and holiday buying behind us, butter prices will likely be pressured more this week. We urge butter users to enjoy this reprieve in butter prices over the next few weeks but as soon as we turn the calendar to 2011, hedging your butterfat costs should be a top priority.

From a cheese standpoint, holiday/Super Bowl buying is still a key feature through most of December and converters are busy getting orders filled this month. The need for additional loads of cheese above and beyond committed contracts is bringing buyers to the exchange to acquire product. It is our belief that prices will test the $1.50 level this week and may even break through that level before the holiday buying spree is over. Dairymen should use this potential bounce in cheese prices to hedge their 2011 production.

Dry whey futures were slightly lower yesterday on moderate volume. The market appears to be pulling back from the $0.40 level that was tested through July 2011 as cheese buyers use the short side of the whey market to complete their hedges. Last week, USDA’s Central Mostly midpoint price was announced at $0.3575 and the Western Mostly midpoint price at $0.39125, up 1/4 and 1/8 cent, respectively. We still believe there is more upside to the whey market in the near term but wouldn’t be surprised to see futures pull back a bit as sellers become a bit more aggressive to lock in cheese hedges.

The dollar continues to rally for the fourth consecutive week and is still providing a headwind to higher grain prices. Still, the Dollar’s strength has been mostly ignored by grain traders lately as China has a meager surplus from which they will need to offer some to their neighbor to the North; everybody agrees there is not enough food in North Korea. Financial woes in Europe and drier weather last week in South America have also provided an underpinning of support to the grain complex. Nevertheless, the technical trend on grains remains down and will be exploited once the bears get the wind to their back. Look for a mixed to slightly weaker opening.

http://www.cmegroup.com/daily_bulletin/Section04_Agricultural_Soft_AltInvestment_Futures_2010229.pdf

11/29 Class III Futures: Volume: 1,634 Open Interest (OI) Change: +441 Total OI: 30,536
11/29 Class III Options: Est. Put Volume: 266 Total OI: 24,947 Est. Call Volume: 255 Total OI: 21,647
11/29 Spot Markets: Block Cheese $1.49 (DOWN 2 1/4), Barrel Cheese $1.4550 (UP 1 1/2), Butter $1.53 (DOWN 14), NFDM: A $1.2250 (UNCH), X $1.2250 (UNCH)
11/29 Other Dairy Futures Volume: Butter: 70 Dry Whey: 66 NFDM: 7 Class IV: 0 Cheese: 52 International SMP: 0

11/29 Individual Class III Futures Prices, Change, Volume & Open Interest
Dec              $13.81             UP 11          Vol: 188        OI Change:       DOWN 15
Jan 11          $13.64             UP 24          Vol: 311        OI Change:       DOWN 5
Feb 11         $13.65             UP 1            Vol: 271        OI Change:       UP 29
Mar 11        $14.00              UP 1           Vol: 66           OI Change:      UP 46
Apr 11         $14.15             UP 5           Vol: 50            OI Change:      UP 29
Jan-June 2011                 Avg: $14.02                               UP $0.06/cwt
July-Dec 2011               Avg: $15.32                                 DOWN $0.01/cwt

Jan-Dec 2011                Avg: $14.67                                UP $0.03/cwt


These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Commodity trading involves risks, and you should fully understand those risks before trading.

Source:
FCStone/Downes-O'Neill