Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.
Class III futures saw a very light trading day yesterday with just 571 trades, despite growing volume on the spot barrel market with six trades occurring and prices moving higher on the spot session, as well. The gains in spot cheese were enough for trade to shake off a mostly bearish GDT result and the influence of the stronger U.S. dollar and weaker outside markets, with butter falling hard. Futures from November through April were up by 2 to 12 cents led by December while prices were mixed from -2 to +2 from June through the end of 2012.
After the close, the dairy products report may have shed some light on just why we’ve seen good support in the spot cheese market as production shifted far more toward other cheeses — and butter — than expected in September and likely has remained that way. Still, with cheese perched just below $1.80 we suspect that the report is already largely figured into prices. We look for cheese to continue to have some support but for sellers to remain in the market offering product as the range bound two sided trade continues.
Cheese futures were relatively active with class III trading slower than recent sessions as 54 contracts were traded. Mostly months were unchanged save for October to January closing up 0.001 to 0.005 cents and May through July closing down 0.001 to 0.006 cents.
Class IV futures were silent yesterday despite the large volume and price decline seen in the butter market. Buyers once again seem content to hold off on purchases given the soft international pricing. Overnight activity however saw sizable volume as a 20-lot January to March pack traded at 20 lower during the evening hours. These sizeable trades should encourage participants to be more willing to post both bids and offers for size as volume and open interest increases.
We look for milk to open slightly higher.
A sharp, mostly unexpected, drop in AMF prices on GDT lowered the value across all contracts by a sharp 9.3 percent. Despite an unchanged spot market that meant deferred U.S. contracts were falling as butter really was the story of the day in an otherwise heavy news but light trading session. Futures saw heavier trading volume with 105 contracts and prices were largely lower. The dairy products report following settlements weighed as well as despite closing higher November traded as low as 1.82 near 4 p.m. Chicago time, some 2.725 cents below settlement.
Overnight eight trades were seen in butter, with five in January which was down 0.500 and two in March which was down 2 cents. February was also offered down 1.75 cents.
We look for butter prices to open lower.