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

Friday was essentially a trading holiday as market participants were on vacation in mass.

Volume Friday was lackluster from a complete trade perspective. But it does appear that for a second consecutive day, sell-side hedgers funneled, or at least tried to funnel, into the market place. Prices last Friday were pressured lower by as much as 24 cents in 2011 Class III, and on the week July began to look top-heavy, but it still closed at $20.51 vs. $20.28 a week previous. On Friday, the October contracts closed at $17.80 vs. $17.58.

The blocks saw their first offer since 6/17/11 and their first price decline since 6/9/11 when they fell just a quarter cent; this time around, they fell a half cent. Other than those two days, you would have to go back to 5/11/11 for a block price decline. The bull appears to be stopped in its tracks and this is just one piece of evidence, along with Dairy Market News confirming the natural cheese is more prevalent in the sales market and mozzarella demand is weak. DMN even went so far as to basically say (paraphrased with a slant) that exports would be nil if not for CWT. In other words, we are paying to export so we can remain price competitive.

Cheese futures traded 32 times last Friday, and while that might seem a small number given the holiday lack of activity, cheese traded the second most (to Class III) of all dairy products. Its price action was in line with that of the class market, and it should be.

We look for Class III to open steady to firm.

We all know by now that corn has lost its bullish steam. But Friday we closed well off our lows, as Dec 2011 traded as low as $5.7550 and came back to close at $5.9675. We are not calling this a bottom, but the market appears oversold. Growing conditions have been great lately, but temps are heating up and forecast to reach undesirable levels very soon, which may provide some price support.

Still, I had the opportunity to eat a brat at the edge of a northern Illinois cornfield this weekend, and though you can’t tell much from the perimeter — and even less from the highway — that corn was chest high if it were an inch. So, overall, the market is starting the second half of the year with a bearish tone. A short-term bounce is due from our perspective, and perhaps a substantial one given the amount of selling we had seen in a short period of time. But the prevailing trend may very well be to the downside into harvest. 

We look for corn to open 12 to 15 cents higher and for beans to open 10 to 15 higher.

Daily CME spot market prices:

Block cheese: $2.125 (down 0.5 cent)

Barrel cheese: $2.0975 (up 1 cent)

Butter: $2.04 (up 1 cent)  

Grade A NFDM: $1.625 (unchanged)        

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Source:  FCStone/Downes-O'Neill