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

Yesterday’s trading activity felt very light despite a total of 1,195 trades. The fact that July accounted for nearly half of the total volume with 490 trades likely accounts for that feeling of a quiet trade. Prices were mixed throughout the morning trading mostly steady to 10 lower early and recovering into the spot session with prices steady to 10 higher. The market caught very little momentum from the bullish corn report in nearby months, but deferred contracts did rally slightly, it seemed, on that news. The spot market closed lower for the first time in 20 sessions. 

The market continues to be very much on edge as spot carries a large premium to the futures prices currently, and it seems that significant price weakness is unlikely at least until next week for the spot markets. A slight break in Oceania cheese prices may slightly ease the markets’ collective mind, but current futures prices would leave us at a moderate discount moving forward. We continue to believe that futures are correct in projecting a lower cheese price, but wonder if the spot market will move even lower than current futures projections, having seemingly overdone themselves to the upside on this most recent upside run.

In the grains, corn got off to a quick start after the release of a USDA report, but soft export sales and seemingly weak crush margins had some looking to play for a pullback early. Both soybeans and wheat traded from sharply higher to losses early in the session, but corn was resilient and refused to let the market collapse. By the end of the day, funds held an estimated record long corn position with both old and new crop corn contracts setting new highs.

The market continues to seem hesitant at these extremely high levels, but it seems to be increasingly difficult to project lower prices, given the production issues and strong demand internationally, especially from China. Of course, all markets are most bullish at their tops.   

This market will remain on edge with the Missouri River flooding issues coming in the next few days, and just a few weeks now from the planting and quarterly stocks report. We cannot recommend buying at these levels, but short-term protection against potentially explosive prices seems very well warranted over the next four weeks to account for the planting report, the July S & D and any larger-than-expected issues along the Missouri River.

By this morning, prices are under pressure from a firming U.S. Dollar and softening crude oil prices. We look for corn to open 5 to 8 cents lower and soybeans to be down 7 to 10 cents.

Daily CME spot market prices:

Block cheese: $2.11 (down 0.25 cents)

Barrel cheese: $2.0675 (unchanged)

Butter: $2.13 (up 3 cents)  

Grade A NFDM: $1.645 (up 0.25 cents)

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.

Source:  FCStone/Downes-O'Neill