Class III futures plummet on sales of block cheese

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

Class III opened weak, and an active spot session with sell side aggressiveness only furthered the price declines. Traders weighed the fact that block sellers returned after more than a week of being absent more heavily than that of a barrel market that closed 1 cent higher after having traded 1 cent lower yesterday. In other words, it appeared that the May to August contracts plummeted Monday on a mix of renewed sell pressure in spot blocks and technical weakness. After all, the spot market is the price today ― not for August, but August broke support last week at $15.90, so it can perhaps more easily get caught up in the selling action.

Once again, the volume and OI changes have confirmed a downside price move and affirmed the bearish trifecta of data recently provided in GDT, Cold storage and Milk Production reports.

Straight down from here on cheese and milk? Probably not. For one, there is buy side interest around the $1.50 mark. Secondly we don’t expect fresh discounts on nearby futures to run much ahead of spot for now. After yesterday, the June Class III now prices $1.4725 (Cheese futures at $1.48). To see a $13 handle at the closing bell today, we expect that spot blocks have to come down under $1.50 rapidly. To begin, however, the new lows for the move made on nearby contracts ought to usher in follow-through selling this morning. 

Corn never really challenged lower levels yesterday, even as the equities fell and U.S. dollar rose. Talk of china has the bears at bay for the time being, but the longer-term trend lines are in violation and the bull has at least been quelled for the time being. All that said, it was an inside day and thus no major changes to price forecasts resulted. Overnight was all too quiet in its firmness, as well.

Private analysts Informa last Friday estimated that nearly a billion bushels of U.S. corn could be potentially harvested prior to Sept. 1 this year, due to early planting in Illinois and states south/southeast of the Corn Belt. That would be almost double last year and the five-year average number, and a record by over 200 million bushels.

We look for corn to open 1 to 2 cents higher and for beans to open 5 to 8 higher.

Daily CME spot market prices:

Block cheese: $1.5225 (down 0.5 cent)

Barrel cheese $1.47 (up 1 cent)

Butter: $1.4125 (unchanged)  

Grade A NFDM: $1.1675 (down 1 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., 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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