Butter futures plummet on spot weakness, Class III mixed

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Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

Spot market activity picked up yesterday as a total of four trades took place in the block and three in the barrels, with four bids remaining for the barrel at the close. Both markets closed unchanged and, while futures were lower by nearly 20 cents ahead of the spot session, the firm buying interest had us believing that futures would rebound toward unchanged; however, the butter market weakness kept the Class III market lower throughout the day.

A total of 847 trades took place on the day, but, as has been the case recently, a majority of the volume came in April and May, with 584 in those months alone. And they were the largest decliners, losing 13 and 16 cents, respectively. June was down 12, while other months saw more moderate losses from steady to -7 cents.

The majority of the volume continues to come from short-term likely spec-type traders, and that has brought on some sharp movements of late. But taking a look at the April to June pack chart, that “noise” has caused very little in terms of price change since late February. Consolidation is clear, and now we look to what the next move may be. And, given the heavy milk supply and softer Class IV market, we suspect that the next movement in Class III futures will also be to the downside. While technically it is too early to say, typically when a consolidation pattern occurs the next sizable movement is in the same direction that the market was moving prior — and clearly that direction is downward.

In the grain complex, we expected to see a more relaxed trade yesterday ahead of the report this morning, but it was instead the fourth consecutive day of significantly lower prices in the grain markets. Weekly export sales were very light, with corn coming in at 6.2 million bushels vs. estimates for 23.6 to 35.4; soybeans at 21.7 vs. estimates for 16.5 to 27.6 and wheat at 14.8 vs. estimates for 16.5 to 27.6. Surprisingly, despite the weak sales, the grains attempted to trade higher early, but as the day wore on weak outside markets, ugly technicals and heavy fund selling weighed. Corn finished down 16.25 cents in May at 604; December was down 12 at 524.25; soybeans were off 12 at 1355.5 in May, down 15.75 in Nov at 1304.75, and wheat was off 18.25 cents in May to 612.5. The report this morning will tell the story. Today, it seems, the potential surprises would be a sharply lower-than-expected old crop corn stock result or a much larger-than-expected soybean planting estimate. 

Daily CME spot market prices:

Block cheese $1.49 (unchanged)

Barrel cheese $1.46 (unchanged)

Butter:  $1.4775 (down 2.75 cents)  

Grade A NFDM: $1.2675 (unchanged)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.






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