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

The Class III market was active early, but took on the tone of the quiet spot market yesterday afternoon, failing to eclipse the 1K mark, trading just 954 contracts on the day. The market rallied sharply early on, led by July to Oct prior to the spot session. For a short time after spot, it looked as though weakness may turn the market lower. But, when spot butter prices found support, the slide was stopped and prices held 5 to 17 cent gains from July through November.  December and 2012 months were steady to 4 higher with one exception — March 2012 lost 6 cents on the day.

CWT announced export sales of 1.4 million pounds last week, bringing its yearly total to 44.7 million pounds: http://www.cwt.coop/sites/default/files/news_releases/CWT-export-assistance-bids-062811.pdf

 Demand seems to be slowing, yet very little cheese has made its way to the exchange. We continue to believe it’s just a matter of time and it would seem to us the longer prices are held up at these elevated levels, the stronger the snap-back may be to the downside when the selloff comes. But, for now, the spreads between front and back months continues to widen — this tells you where to sell (up front) from a hedge perspective, and then you can roll into farther-out months later on.

Cash cheese futures traded moderate volume of 26 contracts yesterday, as prices were moving higher in sympathy with the Class III futures. Each month from August through December closed higher with at least one trade, and gains ranged from 0.005 to 0.027 cents.

We look for Class III to open mixed.

After rallying overnight on weaker-than-expected crop condition ratings, grains maintained that strength through the morning hours and really started to rally hard just before the noon hour led by corn. December corn built momentum after twice testing support at and just under the $6.25 mark the past few sessions and now looks to bounce ahead of the report tomorrow morning.

Overnight, the grain markets were again sharply higher new crop corn reaching as much as 15 higher and old crop months as much as 22 higher; wheat and soybeans also jumped double-digits. At 9 p.m. Chicago time, only corn had backed off its highs, but remained 9 to 16 stronger.

We look for corn to open 15 to 20 cents higher; soybeans to open 12 to 15 higher.

Daily CME spot market prices:

Block cheese: $2.13 (unchanged)

Barrel cheese: $2.0675 (unchanged)

Butter: $2.02 (unchanged)  

Grade A NFDM: $1.625 (unchanged)        

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Source:  FCStone/Downes-O'Neill