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

Friday’s session saw prices get off to a stronger start and, after the spot market closed unchanged with no activity, futures prices closed out the week on an uptick. July Class III hit and settled right at the $21.00 mark yet another new high. Early strength seemed to come as a result of price revisions from the USDA to the previous week’s cheese prices. The block average was revised up 4.47 cents and Friday’s price came in up 5.8 cents from the revised number. Barrels saw a revision of 0.99 cents as well. 

Volume just eclipsed the 1,000 mark at 1,063 as settlements were 7 to 22 higher from July out to Feb of 2012. The July to December pack average gained 35 cents on the week led mostly by the third quarter months, as NASS prices and revision perhaps outperformed trade expectations and the spot market was able to hang in with blocks falling just 1.5 cents on the week and barrels able to gain ½ a cent. Blocks had their most active trading week since the final week of April.

We continue to look for softening spot market prices and believe support from the tariff reduction from the Mexican government is like to have a greater psychological impact than physical one. With Class IV prices falling and Class III prices setting new highs, it seems very likely more product will make its way to the cheese market very shortly.

We look for Class III to open slightly higher this morning.

In the grains, hot-weather concerns Friday and strong export sales of 59.7 million bushels above trade estimates for 33.5 to 53.1 were also providing support; however, private firm Informa released the following estimates ahead of tomorrow’s USDA report.

Corn Yield  162.5 bpa vs. previous 163.6 and USDA 158.7 (WASDE)
Corn Prod  13,759 mil bu vs. previous 13,891 and USDA 13,200 (WASDE-doesn’t count new acres)
Soybean yield 43.1 bpa vs. previous 44.1 and USDA 43.4 (WASDE)
Soybean prod 3,203 mil bu vs. previous 3,276 and USDA 3,285 (WASDE-doesn’t count new acres)

The market has turned from a demand-driven market to a supply-driven market, and given the large difference in early-season estimates to final yield, the trade recognizes the potential for large swings once again and some fear seems to be re-entering the market, pushing us back well above the 6.00 mark. It would seem to us the downside risk is likely the largest heading into tomorrow’s report.

We look for corn to open 8 to 11 cents lower and soybeans to open 8 to 10 lower.

Daily CME spot market prices:

Block cheese: $2.11 (unchanged)

Barrel cheese: $2.1025 (unchanged)

Butter: $2.03 (down 0.5 cent)  

Grade A NFDM: $1.625 (unchanged)     

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