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


So goes another session of coiling action and further consolidation in the Class III market, as recent strength and corrective price action to the upside has the market on the edge of a breakout.

Which way are we going to move? Things look bullish, however, and I stress this, until a real fundamental change in the dynamics are presented in convincing fashion, the likelihood of the train running away to the upside unabated is slim.

The bearish headwinds facing dairy markets in 2015 remain intact. Indeed, spot cheese prices found a sweet spot and a certain level of demand in the mid $1.40/lb. range, and has probed higher. It’s also fair to consider the threat of a downdraft in production out of Oceania, which the market has largely factored in at this point, if not actually overcompensating.

It’s probably more realistic to think of that dynamic more in terms of next season. That said, one also has to wonder if the short covering that added fuel to the rally fire has exhausted itself? If so, a surge higher in the spot market will likely need to transpire in order for the bull to go from jog to sprint. It’s not out of the realm of possibility.

U.S. dairy cow slaughter under federal inspection surged 8.3% year over year, and also logged its third consecutive week of increases, coming in at 65,500 head. Year-to-date, 243,700 head have gone to slaughter, a 1.4% increase from year-ago levels.

Weakness in the the spot price of butter curtailed recent surges in the Class IV market. From a technical perspective, no real damage was incurred, however the current flavor certainly speaks to potential downside risk.

The downdraft in the spot butter price sent futures reeling, and there is the potential for the downturn. However, the Easter demand season is rapidly approaching, so there should be some level of demand and support north of the prior sweet zone at $1.55/lb.

The NFDM futures trade featured a bit of bear spreading yesterday, which worked to pressure nearby contracts and prop up deferred months.


Feb. 5 spot session results:

Block cheese: $1.5350 (unchanged)

Barrel cheese: $1.4850 (unchanged)

Grade A NFDM: $1.0600 (up 0.5¢)

Butter: $1.8400 (down 1.0¢)


Today's expectations:

• Class III & Cheese futures to open higher

• Dry Whey futures to open flat

• Class IV futures to open steady

• NFDM futures to open steady

• Butter futures to open soft


Grain futures

The grain markets found traction on the heels of firm export numbers, but markets remain largely range bound as traders jockey for position ahead of next Tuesday’s USDA World Ag Supply & Demand Estimates report. As attention shifts to the ensuing South American harvest, the market will continue to keep export numbers in the crosshairs, as well as weather developments and any logistical issues that tend to crop up this time of year. Regardless, the acreage battle between corn and soybeans will also be taking center stage in the coming sessions, as there is the expectation that a certain percentage of corn acreage will switch over to beans.


Today’s expectation:

• Grain futures to open slightly higher


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.