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

Following the long holiday weekend, the spot markets jumped up 6 cents on the blocks to $1.87 and 5.25 cents on the barrels to $1.87. 

Late in the day, we began to hear rumors that a cheese manufacturer had to recall an undetermined amount of physical cheese. We can’t substantiate that rumor, but we did hear it from multiple sources and suspect it may have added to the strength yesterday as well as overnight.

It is a classic spike trade that comes during a panic. The problem with these spikes is they can end up giving fodder to the “buy the rumor, sell the fact” mentality common in trading. It’s too early to tell if that will be the way this plays out here, but producers ought to be continually looking at their hedging plan now.

CWT announced they accepted bids for 5.7 million pounds of cheese exports last week for delivery from June through November. The 5.7 million pounds was the largest total volume accepted in any week so far in 2011, bringing the yearly total to 39.1 million pounds; http://www.cwt.coop/sites/default/files/news_releases/CWT-export-assistance-bids-053111.pdf.

In the cash-settled cheese futures market yesterday, sellers were absent as prices moved higher on bids alone, though most months failed to gain as much as the corresponding Class III futures months with prices steady to 5.9 cents stronger.

The overnight Class III session started out quickly with good volume and large price gains, and those gains continued to mount right through 10 p.m. Chicago time. By this morning, a total of 417 trades had occurred with prices backing slightly off of their overnight highs with June through November futures up 13 to 27 cents.

We look for Class III to open higher.

Grains attempted to shake off the news of the Russian export ban being lifted throughout the morning, but failed to do so, and at mid-day prices moved sharply lower. With little news to speak of until after the close, prices remained mostly softer into settlements. The reaction to the Russian news seemed a bit over-baked to us, as this has been rumored for quite some time. But we question the quality of the old-crop Russian wheat, and the removal of the ban was stated with severe caution, citing the need for continued good weather to guarantee a larger new-crop production cycle.

After the close, planting progress reports were released, showing corn at 86% planted but that matters little — the trade remains focused on Ohio at just 19% planted vs. 93% on average. Initial crop ratings showed 63% good/excellent vs. 76% last year and 71.6% on the five-year average, attributed to our wet spring. Soybean planting was also behind trade estimates for 59% completion at just 51% this week a rather large 20% behind year ago and five-year average levels. Spring wheat planting came in this week at 68% planted, actually ahead of trade estimates, but the slowest pace since 1986 and North Dakota at just 55% completed vs. 93% on average.

River flooding, slow planting, estimates for strong Chinese demand, with feed use estimated at 20% greater than year-ago levels, and private estimates indicating just 90 million acres of corn planted vs. the USDA estimate for 92.2 million….. make it very difficult to build a bearish fundamental case at the moment, though most of this news is already priced into the markets.

Daily CME spot market prices:

Block cheese: $1.87 (up 6 cents)

Barrel cheese: $1.87 (up 5.25 cents)

Butter: $2.1625 (down 1.75 cents)  

Grade A NFDM: $1.64 (unchanged)

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Source:  FCStone/Downes-O'Neill