Class III futures take roller coaster ride

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

Class III futures had a bit of a roller coaster ride yesterday. We started the day off on a positive note with the Class III contract anywhere from +.01 to +.05 higher until just before the spot session where we saw a complete turnaround of the sideways-to-higher grind the markets have had for the last few trading sessions.

The July contract took a quick plunge closing out at 18.32 down -.30 on the day and we saw a marked increase in volume from the previous session as we traded 1,327 contracts, almost double what was traded Monday. Compare this to the action of six days ago where the same contract was up +.55 at the close of that day.

We have cautioned our clients about volatility in these markets and had been under the impetus that last week’s move would soon be proven either a big bull bounce or a major turning point and market bottom. This idea should be fully tested this week as we see if we can hold support in the July contract at the 17.97 level. That is the next area of major support for the contract. A hold of that level after a test could mean that we have technically bottomed out and could be in for higher prices. But let’s not get ahead of ourselves. There are still some real bearish fundamentals to the market and we are coming into the true summer months. Schools are closed and there are still reports of a lot of milk available. We saw the Q4 contracts gain on the day, despite the fall off in the front months. The Q4 futures pack closed at 18.61, up +.0.2 on the day on light volume showing signs of the resumption in bear spreads creating a carry market forward.

The spot cheese session was not as active as we have been as of late. The blocks were down ¼ on three trades to 1.7500 and barrels were up 1 ½ on 2 trades to 1.7725. We would like to draw attention to the fact that the block/barrel spread is inverted. After having been over 20 cents wide,  the barrels are now 2 ¼ cents over blocks whereas “normal” is having blocks 3 to 5 cents over the barrels. We shall look at today’s session with much interest on that to see if it continues to hold in that pattern.

Spot Session Results

Block cheese: $1.75 (down 0.25 cent)

Barrel cheese: $1.7725 (up 1.25 cent)

Grade A NFDM:  $1.6925 (unchanged)

Butter: $1.54 (down 0.5 cent)

We saw an up-day for the grains yesterday prior to today’s USDA report. It could have been a bit of closing out those short positions from days prior, but we also saw the funds add on 8,000 contracts during the trading day… Surprising if you look at the sideways to up daily chart for the contract. We have pretty much been in a defined range since the 23rd of May and seem to be looking for something to get us out of this rut. You gotta love a weather market!!!! The old crop market (July) settled yesterday at 659.25 up +9.50 cents on the day with the December contract settling at 550.75 up 4.75 cents on the day.

Beans saw a bit larger rally in the July contract settling at 1540.25, up + 28.75 cents on the day and the Nov. contract was only up 8.00 cents on the day to close at 1327.00. Funds added only 6,000 contracts to their positions, and with the market coming just shy of recent highs one can see why more were not added on. The market is technically over-bought, but that really means very little this time of year. We will wait and be watchful for any surprises in today’s USDA report expecting that today’s WASDE report is likely to be that “thing” that breaks us out of our recent range and sets the new trend.

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