Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
The spread between blocks and barrels widened yesterday, with barrels declining slightly to settle at $1.7950 and blocks holding steady at $1.9025 on no trades. Both blocks and barrels saw no bids, although barrels did see one offer left on the board ― perhaps an indication of further weakness to come. Since last Thursday, the block price is up 1.25 cents at $1.9025. There have been seven trades. The barrel price was 5.50 cents lower at $1.7950 with no trades. The spread is 10.75 cents, outside the historical range of 3 to 5 cents.
Futures reaction was mute with nearby months settling higher, anywhere from +1 to +8, and deferred months mostly lower, anywhere from +1 to -8. With all of the large reports behind us, things seem to be settling down as holiday orders taper.
So, have we put in our holiday highs? It seems more and more likely. With most promotions in place, it is possible to see a few last-minute holiday orders; however, the bulk holiday buying is behind us.
As we look forward, all eyes will be on Oceania as production there seems to strong with the seasonal peak achieved a few weeks ago. Australian output seems to be lagging as less than ideal weather has hit parts of the country hampering production. Bi Weekly International prices released yesterday still reflect the trading discount we’ve been accustomed to even with the recent move higher.
Spot session results:
Block cheese: $1.9025 (unchanged)
Barrel cheese: $1.795 (down 0.25 cent)
Grade A NFDM: $1.9325 (up 1.75 cent)
Butter: $1.56 (unchanged)
Corn was quiet ahead of the USDA S&D report being released on Friday.
Traders will be carefully scrutinizing the November production estimate with changes to both acreage and yields.
Futures settled down slightly to 420 1/2, just down ¾ of a cent. Jan. beans were up 11 ½ cents to settle at 1266 ½. After the November report, traders will contemplate final January production estimates. In the last 10 years, final production has exceeded the November estimate six times by an average of 30 million bushels and declined four times for an average of 24 million bushels.
Traders were also reacting to the announcement that the FDA will move to ban trans fats in the U.S., which would limit the use of hydrogenated soy oil. Food manufactures have been attempting to move away from trans fats in recent years; however, the U.S. currently uses nearly 12.7 billion pounds of soy oil in foods.
This morning, look for corn to open steady to 2 cents higher and beans steady to 4 lower.
The trading of derivatives such as futures, options, and swaps may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Any reference to past performance is not indicative of future results. All references to futures/options trading are made solely on behalf of FCStone, LLC. All references to swap execution and bi-lateral swaps are made solely on behalf of INTL Hanley, LLC. FCStone, LLC will clear swaps when applicable. Swaps are only available to eligible counterparties. All observations of economic, political and/or market conditions are not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. and its subsidiaries and should be construed as market commentary. All recommendations to buy or sell a specific derivative or forecasting statements regarding market activity and the pricing thereof should be construed as a solicitation in any jurisdiction in where such an offer or solicitation would be legal. Proper context and guidance including but not limited to the particular trading objectives, financial situations and the needs of the intended audience were taken into consideration when this recommendation was prepared. Contact your account representative for specific advice to meet your specific trading preferences or goals. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. and its subsidiaries. Sources of information believed to reliable were used in preparing such observations, and no guarantee or representation regarding the accuracy of those sources has been made. INTL FCStone Inc. and its subsidiaries are not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material.