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

There was a lot of volatility on class III futures during Friday’s session but the movement was all up, with prices higher on the day. Huge volume traded with 2,500 contracts on the day; prices were sharply higher throughout the morning with July at one point trading 64 higher to 19.00 before pulling back into the spot session with prices 10 to 30 higher. After spot traded up through 1.70 and closed with no trades and no offers for a short time it looked as though prices would hold their pre spot levels but steady buying throughout the remainder of the session pushed prices with 21- to 60-cent gains from June through November.

The cold storage report was a slight bull for cheese prices but we think most of that has been priced in, especially after Sunday night’s trade. 

Sunday evening prices opened up sharply higher with large volume trading. Just after 10 p.m. Central time, a total of 390 trades had taken place and futures were 14 to 35 higher from June through December with 2012 futures steady to 9 higher as well. By this morning, volume had increased to 434 trades with prices coming off of their overnight highs higher by 8 to 20 cents from June through December. The sharply higher dollar is causing softer outside markets and the weaker equities are likely dragging on class III’s gains.

Despite the current bullishness of this move, producers should be looking at this as an opportunity to add protection. Although this market may continue to run, for now we have a very difficult time believing that a 1.80+ cheese price would hold for the remainder of the summer months. The physical market is still being reported to us as mostly in balance with some location tightness of milk supplies. Despite this large move and with the reported balance of the market, we would expect some kickback in consumer demand with prices seemingly destined for the 1.80 level.  

The grain story remains the same with strong basis values on corn leaving trade fearful USDA is understating demand for the current crop and slow plantings in Ohio, Indiana and North Dakota. The only real news on Friday was talk that Russia may halt their ban of wheat exports but that may likely be delayed until they can gauge the size of their current crop. Planting progress reports today should show good continued gains but the fear remains the troubled areas that are severely lagging.

Overnight markets were once again higher with corn up 6 to 10 cents, soybeans up 6 to 10 and wheat up 7 to 11 cents. The gains are coming despite a sharply higher dollar with over 500 point gains and softer outside markets. By this morning the softer outside markets had weighed heavily enough to push prices mostly lower but still mixed.

We look for corn to open from -2 to +2, beans to open 1 to 4 lower, meal to open steady to 1 lower and for wheat to open softer from -6 to -9.

Daily CME spot market prices:

Block cheese: $1.7075 (Up 1 3/4)

Barrel cheese: $1.7100 (Up 2)

Butter: $2.07 (no change)  

Grade A NFDM: $1.62 (no change)

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Source:  FCStone/Downes-O'Neill