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

Class III and Cheese futures fell softly on light volume Monday, as news to spark any aggressive buyer interest is in short supply. Market participants are focusing on inventories and milk supply, both of which seem to be more than adequate at the current time. The futures market has generally traded lower over the past few weeks, removing some of the forward curve price premium built on the New Zealand drought-fueled rallies of February. Spot cheese is stable.

The GDT auction may offer some new insight, but our expectations are for generally weaker prices.  Additionally, Fonterra announced it will increase total product offerings for GDT by 2.4% over the next 12 months.

It has been said that the best day in a cow’s life is one that looks exactly like the day before.  To that end, weather has cooperated with most U.S. dairies of late, creating great milking conditions.  Much of that milk is making its way to the cheese vat. 

Mixed commodity prices versus last month’s estimates resulted in mostly lower 2015 milk prices in USDA-ERS’ latest Livestock, Dairy, and Poultry Outlook report. Department economists expect 2015 cow numbers to grow 0.8%, to 9.325 million head, a gain of 5,000 head over last month’s report. Milk per cow is expected to rise 1.7%, to 22,640 lbs., down 50 lbs. from the previous month’s projection. Milk production in 2015 is estimated to be 2.5% above 2014, at 211.1 billion lbs., down 400 million lbs. from last month’s estimate.

For 2015, USDA expects the Class III milk price to average $16.25/cwt., $6.09 below 2014’s average. The 2015 Class IV milk price is projected at $15.65/cwt., $6.44 lower than the previous year. With the Class III and IV milk prices lower, 2015’s estimated all-milk price of $17.35/cwt. is projected to be $6.63 lower than in 2014. It would be the seventh highest price on record.

Due to the light trading volume for Class III and Cheese futures of late, we could reasonable expect some choppy trading today – both higher and lower than yesterday.  However, it seems reasonable to us that any modest rally will be sold.  End-user buy interest is still alive and well, but not aggressive.  Overall, we expect the market to continue to chip away at some of the forward curve premium.

The Class IV complex was weak yesterday, with uninspiring results in both nonfat and butter cash markets. Nonfat has been treading water lately. Butter finished down. Futures were mixed for both NFDM and Butter, and NFDM has started today on a weak tone, while butter is relatively stable and inactive so far.  The powder situation in the country remains burdensome, which has prompted NFDM futures to revisit their January lows well into Q3 2015 contract months. 


March 17 spot session results:

Block cheese: $1.5700 (unchanged)

Barrel cheese: $1.5450 (unchanged)

Grade A NFDM: 99.00¢ (down 0.25¢)

Butter: $1.6800 (down 1.5¢)


Today's expectations:

• Class III & Cheese futures to open mixed


Grain futures

The weak energy market is sapping the strength from grain markets. Corn and Soybeans were lower yesterday and again overnight.  Corn has been relatively quiet and option volatility is low. Soybeans have been trading in a wide band since October.  Look for a lower opening this morning.


Today’s expectation:

• Corn & 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.