Class III futures still waiting for a trend to develop

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

After a quiet evening and early morning trade, the Class III market managed to pull up its boot straps and head higher. Trade was really thin going into the spot session, with traders just not having any conviction either way with the market. Once the spot session started, though, we did see some buying pressure come into the markets. Even though it was fairly contained to the 2013 contracts, we did see most contract prices trade off of their lows across the board. The Oct. 13 contract garnered most of the attention yesterday to settle out at $18.06 ― up 24 cents on the day, while the March 14 contract settled out at $16.39 down 6 cents on the day.

While this is viewed as generally positive, we are still pretty much in the same range that we have been in since last Friday and will need further movement to the upside to establish a trend or more of a breakout for the 2013 contracts. We have heard reports from others around the nation that milk supplies are tight, even though there appears to be more milk in the system than the previous year. Things may be getting tighter as demand for Class I is increasing with the start of the school year and in front of holiday demand, which is typical for this time of the year. We will be watching the markets for higher prices to add validity to this typical seasonal trend.

In the spot session, we saw some price movement in the blocks on 2 trades to leave them up +1.000 cent to $1.8200, while barrels were quiet again with no activity in the contract. This marks the highest price of the year for block market and a move more towards the historical 3- to 5-cent spread between the two contracts. Ultimately, the spot markets are slightly overbought, but that does not mean that we can’t rule out higher prices in the short-term. Fundamentally, we still have a lot of cheese out there and demand yet to really pick up. As we move more towards the holidays and processors start filling orders, we will get a clearer picture for longer-term supply and demand fundamentals.

Spot session results:

Block cheese: $1.82 (up 1 cent)

Barrel cheese: $1.80 (unchanged)

Grade A NFDM:  $1.815 (unchanged)

Butter: $1.45 (up 1 cent)

Corn managed to stay positive though out most of yesterday’s session, while we had the soybean markets put in a slightly negative showing when it was all said and done.

Corn was slightly positive on the open to only increase gains during the session. Dec. 13 corn closed out at $4.6900 ― up +5 ½ cents on the day. Nov beans, on the other hand, were fairly negative from the get-go yesterday and at one time down over  16 cents, only to climb back throughout the session to close at $13.5500 down 1 ½ cents on the day. The action for the day was mainly attributed to traders closing out the popular long beans/short corn spreads ahead of Thursday’s USDA report. It also looks like funds did cover a portion of their overall short position in the corn market. We will look for more position squaring ahead of Thursday’s reports and expect a more subdued market until we get the numbers.

It looks like a quiet open for the grains this morning with prices mixed from -3 to +3 across the board.

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