Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

Markets fall, markets rally…whether its equities, grains or dairy, it’s been rocky of late. Friday, Class III got its dose of the volatile medicine, opening sharply lower and rallying by the end of the day. The bigger the move is in one direction, the bigger the vacuum that is created in the other direction and the more price can move wildly.

When the dust settled Friday, prices had finished higher but the August-Dec pack still lost 40 cents on the week

Cheese has been coming to the exchange, and that in itself is bearish. Buyers have shown up, but one must wonder how long that will last at current levels. The barrels are tighter and their price rise last Friday kept futures strong despite the further block price decline. But, for the most part, it’s about the block/barrel spread and most of all Friday was a dead-cat bounce in the front month Class III futures.

Cash cheese futures volume has been decent, but consistent of late. Prices are moving near lock-step with Class III of late as well. The upcoming school season should tighten milk supply up a bit more, making it tighter on cheese, but the next couple weeks are the high-risk time period for cheese bulls.

This morning, we look for Class III to open mixed; lower in front and higher in back.

Grain prices experienced a mixed session on Friday, trading both sides of unchanged as the outside markets failed to make a decisive move. Ultimately, prices settled mixed, as well, with corn up ½ a cent to 714.5, beans up 3 to 1327.75 and wheat down ¾ of a cent at 732.25. The August USDA report now behind us — the trade will continue to debate the effect of a very hot July on final yields and also what the final harvested acreage number will be. On the week, corn gained 11.5 cents, soybeans gained 8.75 cents, and wheat picked up 9.25 cents, mostly due to the USDA S&D estimates and despite a very volatile equities market.

We see beans and wheat as undervalued vs. corn currently with the soybean carryout extremely tight and the close relationship of corn and wheat prices likely to lead to an abundance of wheat feeding it seems those markets have some catching up to do. How that occurs, however, may rest upon what corn prices do early this week. The December corn contract is right up against resistance at its previous contract high of 7.2275, and while we would say we are slightly bearish in the short term, if we break through it’s unlikely that a new high would be set by just a few cents and prices will likely zoom higher. Crop condition reports being released after the close may provide support early this week, but we will be watching the charts to determine the direction of the next move.

 We look for corn to open 3 to 5 cents higher and beans to open 8 to 10 higher.

Daily CME spot market prices:

Block cheese: $2.025 (down 3 cents)

Barrel cheese: $2.08 (up 1 cent)

Butter: $2.0725 (up 3 cents)  

Grade A NFDM: $1.51 (unchanged)     

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