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

After opening sharply higher on heavy volume Sunday night, the Class III rally that posted new contract highs from June 2011 through March 2012 failed by mid-day Monday after uncertainty of Chicago Mercantile Exchange cash session activity gave way to only modest gains. The CME spot market was all bark and no bite as bids raised the price of blocks and barrels up .50 and .25, respectively. That was not enough support to warrant the kind of gains we saw in the overnight futures session and with that both speculative and producer selling ensued. Prices retreated from their fresh highs closing +.01 to -.18 cents in 2011 on a more moderate 1,214 contract volume.

With last week’s block/barrel price averages in the mid to low $1.60’s, we expected to hear more anecdotal discussion of eager buyers clogging up phone lines to sellers and physical brokers in the country on Monday. Historically, buyers are eager early in the week during times of rising CME spot prices. We did not hear such claims, though it is too early to write off that type of buy interest yet this week. 

While Class III had a pronounced two-sided trade cheese futures were near silent trading four contracts and settling unchanged to -.015. Still, both Class III and cheese carry sizable premiums to CME spot, which we expect can and will erode more today in the face of another lackluster CME spot session.

The overnight Class III session traded 63 times with prices mixed form -9 to +5. Clearly the market is reeling in anticipation of the next move and many differing opinions are out there as to whether cheese in the 1.70’s is fundamentally supportable right now.

We look for Class III to open mixed this morning.

In the spot market, butter prices were up ¼ cent to 2.0725 on an uncovered bid. The futures market was another ballgame, with price driven up 3.750 cents to the daily limit (5 cents) which we saw in June, August, September and October. Interestingly, we saw these prices ahead of the spot session. This price movement was clearly a product of Friday’s cold storage report. Buyers are running scared and their fear seems justified as the bullish cold storage report we saw on Friday which saw not only a revision downward but also a decline in stocks month over month.

We look for butter futures to open higher. Please note that butter limits will remain 5 cents and will not be expanded.

The grain complex, which was also firm for the bulk of Sunday evening, gave back gains in the early morning. The trade tried to build in some lousy weather and pre-USDA Corp Progress Report premium, but ran into a solid headwind of a skyrocketing U.S. dollar and dim global macro-economic outlook.  The worry is European debt and the prognostication that it will get worse before it gets better. 

Corn plantings continue to move ahead at a decent pace clocking a rating of 79 percent planted as of May 22.  That’s up 16 percentage points from last week, but still shy of the 5 year average of 87 percent planted (92 percent last year).  Seems a little heavier than expected overall for corn, but the real talk was the weak link of Ohio. Traders were looking for 10 percent or less planted.  The USDA said 11 percent has actually been planted, but that’s nothing to write home about as that figure is somewhere close to 69 percent below the five year average. Overall good gains for such a dismal start. 

Soybeans, too, got a nice jump on planting at 41 percent in the ground.  That nearly doubled from last week but still falls short of typical progress by this time of the year.  Soybean futures have traced a broad trading range since November last year of 13.00-$14.25 and, like corn futures, we are headed to the top of that range again. Look for broader macro information to drive the grains early today.

Rains are to start up again today and Wednesday across the southern half of the Corn Belt with 0.5-inches of rain or more expected.  Some areas of Nebraska, Iowa and Indiana are expecting 2-inches to 4-inches of rain. They do see a break in the six-to-10-day outlook.

We look for corn to open 1 to 2 lower for old crop and 1 to 2 higher for new crop, beans to open 8 to 11 higher, meal to open 2 to 3 higher and for wheat to open 2 to 3 lower.

Daily CME spot market prices:

Block cheese: $1.7125 (Up 1/2)

Barrel cheese: $1.7125 (Up 1/4)

Butter: $2.0750 (Up 1/2)  

Grade A NFDM: $1.62 (no change)

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Source:  FCStone/Downes-O'Neill