Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.
Class III and cheese futures continued to rally last Friday ahead of November’s USDA Milk Production report, as trader’s positioned themselves ahead of the report and the Christmas holiday. The milk production numbers fell short of expectations, up 3.4% nationally. FCStone was not alone in expecting a 4.0%-plus production growth; many participants we’re looking for 4%-5% growth, and USDA’s report is seen as bullish versus expectations. Overall, however, the health of the U.S. milk supply does not seem to be in any jeopardy. And, if the demand side of the equation continues to slow heading into 2015, 3.4% production growth will feel quite a bit heavier than it does today.
Overnight futures are leaning lower. We called for some firming action off of the report, but it looks as though the futures have adjusted enough to accept a 3.4% number. Pay attention to how these markets finish Monday. On the heels of a report, it is often more important the direction of the market on the close rather than the open.
Cheese futures posted another strong volume day on Friday, continuing explosive growth this year.
The dry whey market took a breather on Friday, trading mixed. We expect additional futures strength for the Q1 contracts in the coming days, but overall the temperament of the market is more mixed.
Butter and NFDM bounced mildly on Friday, on moderate volume.
Through Dec. 6, year-to-date dairy cow slaughter under federal inspection was down 10.1% compared with the same period the previous year.
Dec. 19 spot session results:
Block cheese: $1.6100 (up 0.25¢)
Barrel cheese: $1.5500 (down 3.75¢)
Grade A NFDM: $1.0025 (down 1.0¢)
Butter: $1.6100 (up 1.0¢)
• Class III & Cheese futures to open lower
• Dry Whey futures to open steady
• Class IV, Butter & NFDM futures to open steady to mixed
Grain markets wrapped up the week on soft footing, balancing the typical “holiday mode” which features less volume and less conviction on price direction with fundamental aspects that have largely held corn and soybeans range bound.
Corn finished Friday’s session fractionally mixed, but continues to hold north of $4.00/bushel. Lack of farmer selling has put a temporary bid under the market.
Soybeans have also traded sideways, finding support near $10.00/bushel. Demand for soymeal continues to underpin the market.
• 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.