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

Class III futures continued to press lower yesterday. 1H 2015 finished down 26¢ to close at $14.76/cwt.; 2H 2015 didn’t fare any better, dropping 20¢, to $16.11/cwt. Cheese and whey futures followed suit, finishing lower. The spot markets again failed to provide any direction, as blocks and barrels were quiet with no activity.

From a producer standpoint, prices are terrible, with future profitability coming into question. Buyers continue to take a wait-and-see approach. 2014 was a tough year for budgets and forecasts, and  many buyers have learned a lesson. They may not get the bottom of the market, but you won’t see many suffer the extreme highs again.

Yesterday’s GDT results were better, with a 3.6% increase across all products. However, volume was 27.5% lower than last year. Fonterra continues to be the only real player. 

Class IV futures were pressured lower. The nonfat spot market ended in a stalemate, settling unchanged. NFDM futures values continued to deteriorate. USDA’s Dairy Products report showed we are continuing to build inventory. We have been out of the export game, but are now gaining competitiveness at lower prices. Nonetheless we will continue to face headwinds with the vastly stronger U.S. dollar and a deflationary environment for commodities in general.

One load of butter traded hands on the CME yesterday, settling unchanged. Futures traded unchanged to 2.125¢ lower across 2015. Fat prices were bid up 13% on the GDT auction yesterday, as the price gap between Oceania and U.S. prices continues to narrow. Going forward, there won’t be many opportunities to import fat into the U.S., conversely the U.S. may become competitive again in the export markets if we see prices move much lower.

 

Jan. 6 spot session results:

Block cheese: $1.5700 (unchanged)

Barrel cheese: $1.5400 (unchanged)

Grade A NFDM: $1.0000 (unchanged)

Butter: $1.5400 (unchanged)

 

Today's expectations:

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

• Class IV, Butter & NFDM futures to open steady to higher

 

Grain futures

Corn finished slightly lower after initially trading higher. Soybeans continue to lead the charge higher, as exports continue to outpace estimates. Given the tremendous soybean export pace, traders are starting to wonder if we will get a revision higher on the USDA export forecast. 

Informa released 2014 production numbers mid-day, estimating final U.S. 2014 corn production at 14.42 billion bushels, slightly lowering yield, but increasing harvested acres. U.S. soybean production was estimated at 3.96 billion bushels, lowering yield slightly, but still above previous USDA estimates.

USDA releases annual Crop Production and quarterly Grain Stocks reports on Jan. 12.

 

Today’s expectation:

• Grain futures to open mixed

 

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.