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

As was the case last week, Class III futures and the spot market continued to see their gap widen Monday. With $2.11 block cheese, futures seem rather exhausted and content to now trade a discount to spot after the recent sharp rally. With blocks up 6 cents and barrels up 9, futures settled mixed with June through August up 4 to 17 cents and September through December down 5 to 14. Volume was good with 1,433 contracts traded, but futures are now projecting a decline in the spot market moving forward, and so far this year futures have been an excellent predictor of the impending direction of the spot market.

We’d like to put on our bullish caps and think it would be wise if milk were in short supply. But though we hear of pockets where that’s the case, we just struggle to believe that supply can be the issue here with production reported to us at record levels from a number of producers, mostly along the west coast during the month of May, heat just now sweeping across the country for the first time in mid June, schools now out of session and an already lower fluid consumption level prior to schools letting out. We think the break in the butter market, despite very tight supplies, and the likely movement from Class IV into Class III after the recent rally is perhaps the strongest indication that milk is out there and it will just be a matter of time until it moves into the needed channels. It seems the short-term supply disruption caused by the recent cheese issues is rearing its head here, but prices will likely ease as that situation corrects.

Grains experienced a strong sell-off Monday, mostly on expectations for strong planting progress to be reported following the close of trading. Corn settled down 22 cents in July at 732, losing ground vs. new crop which was down 19.25 at 667 despite July trading at a premium throughout nearly the entire session. Soybeans fell by 24 to 31 cents after having been the leader to the upside recently. Meal finished the day down 9 to 359.4. 

After the close, planting progress reports showed corn at 94% complete — right in line with trade estimates, as Ohio planted 39% this week jumping to 58% completed. Soybeans were slightly behind pace at 68% completed and a bit behind trade estimates, but left little to be concerned over.

By this morning, prices have turned to a mixed trade, as the dollar slipping seems to have done little for the grains. We look for corn to open steady to 4 cents higher; soybeans to open 3 to 5 higher.

Daily CME spot market prices:

Block cheese: $2.11 (up 6 cents)

Barrel cheese: $2.05 (up 9 cents)

Butter: $2.125 (down 1.75 cents)  

Grade A NFDM: $1.6425 (unchanged)

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Source:  FCStone/Downes-O'Neill