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

To the confusion of many, spot cheese prices continue to hold at current levels and even push higher. The futures have built in a steep discount and an inverted curve already pricing in and guessing when a decline will occur. When another session holds, as it did yesterday, the market is compelled to bring futures prices up and admit error in judgment at least for the short-term. Cheese is that prevalent in the market, but from we hear it isn’t all that tight either and over two bucks should zap demand pretty hard and fast.

Prices languished yesterday morning and then spiked upward after cheese. Some dairyman are taking advantage and locking in margins amidst a corn price collapse. Peter Ulrich spoke bearishly regarding milk prices at the Annual Outlook Conference, and was bearish in tone for commodities in general short/medium term and the equities as well. Expectations from a majority of speakers was that we’d see interest rates compelled to move higher, which would at least pause the decline in U.S. dollar valuations and make the commodity bull take a breather.

Cash cheese futures traded 12 times with prices moving upward in tandem with Class III prices, but in a more subdued fashion. 

Sixty-two contracts traded in Class III overnight with the July contract garnering more than half of the volume in a mostly steady to firm trade. We look for Class III to open firm, for spot to be steady to slightly higher, and for futures to close with gains.

Corn prices continued to move lower yesterday, driven by the soaring dollar, improving weather and continued talk that ethanol subsidies would be slashed. For the time being, the ethanol subsidies shall remain in place, but it seems that the political will to end the subsidies and tariffs on imports is gaining traction. This gave the funds all the incentive they needed to continue liquidating their positions, sending corn settlements in July down 24.25 cents to 701.50, while the new crop December contract lost 13 cents to settle at 650. Beans also got lost grounds with the July contract settling down 17.50 cents to 1350.50 while November dropped 16.50 cent to 1350.25.

We look for corn to open 11to 12 cents higher; soybeans to open 5 to 7 higher.

Daily CME spot market prices:

Block cheese: $2.1125 (up 0.25 cent)

Barrel cheese: $2.0775 (up 0.25 cent)

Butter: $2.14 (unchanged)  

Grade A NFDM: $1.655 (unchanged)        

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Source:  FCStone/Downes-O'Neill