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

Class III prices surged higher, aided by the bullish grain reports released early Friday morning.  Contracts settled from unchanged to 39 cents higher on 1,584 total trades, with a majority of the volume and gains contained within the April to July months. Open interest, when excluding March’s come off the boards, was up only 33 contracts. And most of the Open Interest increases were in farther-out months, where prices were only 5 cents or less; thus, we don’t buy into the sustainability of increases. However, key areas of technical resistance -- or those price levels at which price advances should have slowed -- were breached with Friday’s price rally. This could be what is commonly referred to as a “head-fake,” but the jury is still out on that. Should we finish today higher, we would expect to see a larger shift in sentiment, which would fade the largely bearish posturing of the market today.

Cheese futures were able to post moderate gains, bolstered by the strength in the Class III market and the spot session, as contracts settled from unchanged to $0.032 higher in June. Twenty of the 22 two trades in the futures transpired in the April through August contracts, with the last two occurring in December. The second quarter pack leapt $0.0197 over Thursday’s close to settle at $1.5777, and $0.0264 from last Friday. The futures have been range bound of late, trading in a roughly six-cent range through much of March, possibly setting up for a breakout move with odds in favor of lower prices. The spot session was unable to produce any trades as both the blocks and barrels settled unchanged, but bid interest in each market revealed interested buyers stepping back into the markets. The barrels settled at $1.46 on three bids, while the blocks closed out at $1.49 on a single bid. The weekly NASS numbers posted gains for both the blocks and the barrels. The blocks gained 1.8 cents over last week to $1.5135, while the barrels jumped 4.84 cents to $1.5297. 

With the bullish grain report Friday morning, corn and the other grains pushed up hard on the open, and strengthened as the day went on. The most serious part of the report came with the sharply lower expected acreage for beans being planted, with corn support coming through on reports of old crop stocks being 150 million bushels lower than expected, with new crop looking bearish based on initial acreage assessments and longer growing season. Old crop corn finished limit up in May to $6.44 even, July finished up 39 ½ to $6.43 ¼.  The other months came in strong as well, with December finishing up 16 cents to $5.40 ¼ on 402,758 contracts traded in Friday’s session. Soybean futures were headed up and up hard on the morning report, and this pushed the beans up through 2012 and 2013.  May beans were up 47 ½ cents to $14.03 even, and July was up to $14.08 ¼. These prices were reflected in gains up to 53 ¼ cents in Nov ’12. 

The grains began Sunday evening led higher by old crop corn, and by morning beans had taken the lead again. Watch carefully today to see if the rally runs out of steam, and, if so, at what price point we begin to fade.

We look for corn to open 2 to 8 cents higher and for beans to open 9 to 11 higher. 

Daily CME spot market prices:

Block cheese $1.49 (unchanged)

Barrel cheese $1.46 (unchanged)

Butter:  $1.4625 (down 1.5 cent)  

Grade A NFDM: $1.2675 (unchanged)

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