Class III futures mostly down Tuesday on CME

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

During an active session Tuesday, the Class III market settled anywhere from -8 to -1 throughout 2013 contracts, while the 2014 contracts settled -12 to +3 on the day. The spot cheese markets were mixed with blocks steady and barrels up 0.75 cents on the day. The July-Dec Class III pack is currently trading at $18.11 ― 22 cents off its July high of $18.33 made just last week.

Overall, the roller coaster continues as seasonal declines in production bump up against heavy inventories. 

Although a recent heat event and stronger GDT auction spurred a move higher, traders have begun to once again reassess the overall picture. The demand picture is currently far from robust. And although there may be a little bump as the oppressive heat dissipates, it may not be enough to help burn through inventories. That being said, even with another significant heat event/production hit, it may take some time to utilize excess inventory. According to the latest Commercial Disappearance Report, we are sitting on nearly a two month supply of butter and American cheese, with nearly a one-month supply of total cheese inventories.

Although we have cooled off weather wise, we are not out of the woods in regards to potential heat events. A sustained heat event occurring in conjunction with schools opening back up during the mid- to late-August time frame could potentially set the market moving higher just ahead of the onset of New Zealand production season. In the short term, one could expect both end-users and producers to err on the side of caution, locking in opportunities as they present themselves, as signals are mixed. For the time being, our opinion is the largest potential risk remains to the upside.

Spot session results:

Block cheese: $1.7275 (unchanged)

Barrel cheese: $1.705 (up 0.75 cent)

Grade A NFDM:  $1.775 (unchanged)

Butter: $1.43 (unchanged)

In the grain complex, December corn settled down 12.25 cents to $4.8550 ― finally able to break and hold below the $4.90 mark it has tested so many times over the past few weeks. Nov beans plummeted 28.25 cents to settle at $12.6025 as better-than-expected overnight rains in the western Corn Belt and forecasts for normal to below-normal temps (ideal for pollination) helped spur this move to the downside, even as Monday night corn crop conditions deteriorated by 3% points to 63%. Soybean values plummeted on reports of suddenly weakening basis, as well, as rumors concerning China selling up to 3mmt of their domestic 9mmt reserve into their domestic market. This concern, coupled with further fears of reduced Chinese buying, helped move the market down double-digits. The Aug soybean meal contract had one wild session, closing up the limit on Monday prices traded to nearly $19 per ton higher overnight before collapsing and closing the session 14.6 lower.  

This morning, we look for corn to open steady to 3 cents higher and soybeans mixed with August lower and deferred contracts 4 to 7 higher.

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