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

Heat remains the topic of choice and it’s not going away as DMN cited large drop-off in milk production and a recovery that might not materialize until fall. But weather markets often fade as quickly as they emerge. Still, sellers have stepped this week back on concerns over product availability later this year. In order for prices to cool, the weather might have to do so first.

Futures trading was lackluster pre-spot with very light volumes.   

International prices showed pressure as can be seen above and that was expected (see above), but the U.S. is trading weather right now.

Cash-cheese futures also took a breather yesterday after a string of strong-volume sessions, Only six trades were recorded yesterday, as prices were firm until Dec 2012 and January 2013. 

Corn prices retreated by almost a nickel. Weather is the talk; this heat is potentially damaging but it’s a bit early to get too buy on irreversible damage. We’ll continue to chop around, and unless you own a first-rate weather modeling system, it will likely be the futures market that will be your first indication that forecasts show cooler weather. 

Overnight, we gained some back but not too much. The grains are largely even ignoring the outside markets for the moment, but that likely won’t last long. Prices remain near the higher end of the recent range and we have a hard time being convinced this is a buy level with the heat likely to break for now despite forecasts for another wave to hit in two weeks. Demand has been proven to suffer when we near the $7.00 mark and that appears to be the case again. Expect today’s trading activity to be heavily reliant upon the mid-day weather forecasts heading into a long weekend during the peak weather worry season.

We look for corn to open 1 to 2 cents higher and soybeans to open 1 to 3 higher.

Daily CME spot market prices:

Block cheese: $2.145 (up 0.5 cent)

Barrel cheese: $2.1175 (up 0.25 cent)

Butter: $2.035 (unchanged)  

Grade A NFDM: $1.525 (unchanged)     

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.