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

Sunday’s evening session started higher, but the debt downgrade panic that inspired a 600 + point drop on the DOW crept ever so slightly into dairy and prices slipped early. Once the spot cheese session kicked off and buyers were nowhere to be found, the futures slide began in force.

This is the second consecutive week for prices to start out lower, following a strong trend of increasing prices at the week’s onset. We hear of barrel prices off exchange trading as low as $1.99/lb. and concentrated around $2.05/lb. Lots of aged supply is rumored to be out there. The change in Open Interest, which was massively higher once you exclude the July removal, signals that new contracts are being formed on price breaks, which is bearish and had not been the case just a couple weeks ago. Look for farmer selling to continue and for specs to be selling the front and buying the back months.

This morning, we look for Class III to open mostly lower.

Grains all fell on outside market influences, but they gave a good fight early on as the equities plunged faster and farther. We have been saying for weeks that this time of year, we trade two things: weather and outside markets. We have also been saying that short of economic collapse there probably isn’t all too much directional move lower in grains beyond 40 cents — well, we are facing economic collapse so watch out.

Grain prices fell again last evening and this morning. On top of that, the U.S. dollar is holding firm and there isn’t an outside market in favor of rising grain prices right now. Chances for a turnaround Tuesday are slim to none without major government action announced, which is unexpected. Bullish corn market ideas will succumb to the chaos in a financial system breakdown. If the order of magnitude grows worse, expect the grains to fall even more precipitously as speculators sell long positions.

We look for corn to open 2 to 5 cents lower and soybeans to open 3 to 7 lower. The grains feel like they want to rally if they can get some relief or separation from outside market factors.

Daily CME spot market prices:

Block cheese: $2.13 (down 0.25 cent)

Barrel cheese: $2.135 (unchanged)

Butter: $2.10 (down 0.25 cent)  

Grade A NFDM: $1.51 (unchanged)     

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