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

USDA’s Milk Production Report is slated for release today at 2 p.m. (Central).  Market expectations are fairly widespread, with an increase in the range of 3.0%-4.5%. FCStone is looking for a number in the lower end of the range, near 3.2%.

Class III futures trading volume and price action took a breather Tuesday as the market consolidated recent losses. The weaker GDT index and falling block price did not cause additional panic selling, but rather a mostly orderly two-sided trade. The January-December 2015 Class III average continues to hover around the $17.00/cwt. level.

The GDT auction left the global price index down 3.1% as weakness in powders resumed, offsetting any gains seen in cheese and butter. Yesterday’s auction posted the lowest price levels since August 2009, so our original ideas that GDT was finding some stability were quashed.  Overall, however, our view is that GDT downside is more limited at current levels, and that prices will carve out some level of equilibrium in the coming auctions. 

Spot activity was weaker again. While we’ve heard and reported on fresh block cheese availability over the past week, it was barrel cheese that seems more widely available than blocks recently.  However, barrels remain perched over $1.90/lb. while blocks made a new low of $1.85/lb., a price not seen since Nov. 25, 2013.

Cheese futures traded in similar fashion to Class III. The current January-December 2015 cheese average is $1.7366/lb.

Dry whey finished Tuesday mixed, leaving the 2015 average at 46.16¢/lb.  We expect the market to show more weakness in the nearby contracts.  The 2015 contracts appear to have found some level of equilibrium for the time being.

Class IV futures pushed new lows amid weakness in both NFDM and butter futures. Class IV has been rather quiet over the past month or so but that has not stopped the market from trending lower. The short-term bounce we looked for several days ago on NFDM came and went.  Weakness in both SMP and WMP during GDT auction may have inspired fresh selling for U.S. NFDM. Butter futures have been choppy and sideways, but we are looking for another run towards the $1.80/lb. mark on spot butter, and with that we ought to see some additional futures price pressure. 

Nov. 18 spot session results:

Block cheese: $1.8500 (down 3.0¢)

Barrel cheese: $1.9150 (unchanged)

Grade A NFDM: $1.1875 (down 0.5¢)

Butter: $1.9875 (unchanged)

 

Today's expectations:

• Class III, Cheese & Dry Whey futures to open mixed

• Class IV, Butter & NFDM futures to open mixed

 

Grain futures

The grain complex was largely lower yesterday on light volume. We look for more weakness as prices on both corn and soybeans are poised to clear their 20-day moving average.

 

Today’s expectation:

• Corn futures to open lower

• Soybeans and soybean meal to open 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.