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

Class III futures were mainly higher yesterday, as the spot cheese market remained steady after pushing fresh lows last Friday. Class III settled unchanged to 20¢ higher through 2015 on light volume. The lighter, holiday volume ought not to be totally dismissed, even when considering continued bearish news.  Markets often begin corrections quietly and with little regard for market opinion.  Class III contracts are up as much as 27¢ overnight, and the January-December pack average is up 14¢, to $15.99/cwt.

We find bearish arguments and outlooks more compelling, and don’t see that changing next month. We know milk production is strong globally and in the U.S.  We know that demand – although intact domestically – is not what it was a year ago (or even a few months ago).  We know imports are rising. Most signs point towards weaker pricing from current levels – not higher prices.  That does not mean, however, that a bear bounce or a futures market correction cannot occur.  And we expect this is beginning.  The question will then become, is it a correction or is it something more?

Dry whey settled steady/mixed yesterday. The Q1 2015 pack is currently trading at 47.233¢/lb., up nearly 6¢ from its Dec. 16 low. Look for more of mixed trade at current levels for dry whey today.

Butter’s slide continues, with nearby February down nearly 4¢ on the day yesterday.  As demand weakens and supplies build, one could expect further weakness in this market, with some estimates that project butter bottoming out in the $1.30s.  That said, we see support at current levels.  Supply/demand fundamentals are king, but it is important to recognize where support and resistance levels come in, as they typically play a key role in trading behavior. 

NFDM futures settled mainly higher on the day yesterday on light volume.  NFDM supplies continue to build. However, the free fall has subsided a bit, with nearby Q1 2015 trading sideways for the past 2 weeks.


Dec. 29 spot session results:

Block cheese: $1.4950 (unchanged)

Barrel cheese: $1.4200 (unchanged)

Grade A NFDM: $1.0000 (unchanged)

Butter: $1.5550 (unchanged)


Today's expectations:

• Class III & Cheese futures to open mostly higher

• Dry Whey futures to open mixed

• Class IV, Butter & NFDM futures to open mixed


Grain futures

Grain markets got a strong start yesterday on the heels of better-than-expected corn export sales and a solid showing on bean export sales. The rally posted a new high for the 3-month move in corn (yes – we’ve been trending higher for 3 months in corn if you can believe it) before failing to maintain upward momentum and closing lower.  Soybeans follow similar action as the rally in both beans and bean meal faded into negative territory by the closing bell. Such a failure – albeit small – is a negative indication for both markets.  Perhaps it is simply end-of-the-year positioning/profit-taking, but our take is that the markets are materially overdone to the upside for the time-being.


Today’s expectation:

• Corn and soybean futures 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.