Markets: The trends are bullish

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

After starting on a mixed note, the Class III market soared Thursday on heavy volume. Both spot blocks and barrels edged mere two cents higher, helping to launch futures. August to December futures are now a detached $1.00 to $1.50/cwt. higher than the spot market equivalent through the rest of the year. 2013 contract continue to push higher also. When the dust settled, both January and February contracts finished with their 2012 brethren, perched north of $18.00. 

The trend is bullish. The weather is bullish. Cheese demand is ho-hum, and we hear fresh cheese is readily available. Hedging in this type of market is not for the faint of heart. Commercial buyers are aching with each $0.10/cwt move they are not participating in, and producers may have some for having made sales early in this rally if they had not locked up inputs, as well. The emotional component of your business is likely running full tilt. This may sound crazy, but take a deep breath and avoid doing something rash that you may regret. Our milk market has already made a major adjustment for hot weather and subsequent loss of milk to date.

Dairy cow slaughter under federal inspection was up 2.7 percent, at 52,700 head, compared with the same period the previous year. Year-to-date slaughter levels are 3.6 percent higher than 2011 levels, with 1,523,300 head slaughtered.

Grains shrugged off a textbook, top-forming key reversal following Wednesday morning’s bullish USDA reports, with corn leading the pack up around 30 cents yesterday. End-users stomachs sank. A closer look, however,  reveals that yesterday’s rally ― though gut-wrenching for buyers ― could a post-reversal consolidation of the market and not the beginning of the next leg up unless the weather stays extreme. If you haven’t bought corn through the end of the year, we’d like to ask that you close out the week in the same fashion if you are not prepared to buy puts under what you buy. 

Goldman Sachs raised their corn price forecast for three, six, and 12 months, from $6.30 to $6.90 per bushel. They estimate the corn yield at 143.5 bushels per acre, below the USDA’s new 146.0 bushels per acre.

We would like to tell you to buy put options on any corn or soybean meal you do have purchased. Markets will continue to be volatile, but regardless of the damage will likely get price crushed after the first meaningful rains ― if they come in time.

Simple trade note: The trend is your friend. It’s easier to not fight it most of the time.

We look for grain prices to open extremely high again on weather.

Daily CME spot market prices:

Block cheese: $1.665 (up 2 cents)

Barrel cheese $1.66 (up 2 cents)

Butter: $1.54 (unchanged)  

Grade A NFDM: $1.26 (up 1.75 cent)

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., INTL FCStone Inc., 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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