Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.

Class III futures recaptured about half of the losses seen earlier in the week during a relatively quiet rally. The most interesting piece of yesterday’s trade was not volume, but open interest, which rose by 723 contracts.  More often than not, price direction, trading volume and open interest go hand-in-hand for determining the strength or weakness of a futures market.  If prices, volume and open interest are higher, a strong case is generally made for strength of a bull trend. Likewise, if market participants are adding to positions – or growing open interest – in a falling market, a strong case is made for a bearish trend. In Thursday’s case, we had strong price movement and open interest growth, but only moderate volume for Class III.  At first blush, this is likely the result of a highly volatile market. But the take-away is that the correction that began this week may not be over.

Cheese futures moved higher with Class III and had similar results from a glance at volume and open interest.  Volume registered at 142 contracts, while open interest rose by 94 contracts. Again, we look at this activity as the cumulative result of a volatile market. But it lessens the bullish undertones to the trade yesterday.

As the market works through some of the price volatility, we’d be remiss to only focus on volume and open interest. Supply and demand are still king and, for now, it appears both are working in unison. Both domestic and export demand is alive and well, but so too is milk supply. We know about the seasonally significant growth in production out West for the time-being, but the wild card has been the Midwest.  While we have yet to hear of any real surpluses in the Upper Midwest, we expect that milk production growth will become more of the chatter in the next 30 days or so. As this happens, it could take away some of the bullish luster of the market short-term regardless of the potential milk production issues this summer (especially out in California).

FC Stone's annual Dairy Outlook Conference will be held June 18-19, in Chicago. Visit www.intlfcstone.com/events for information.


Feb. 27 spot session results:

Block cheese: $2.22 (up 0.5¢)

Barrel cheese: $2.20 (unchanged)

Grade A NFDM:  $2.04 (up 1.0¢)

Butter: $1.78 (unchanged)


Today's expectations:

• Class III, Cheese & Dry Whey futures to open mixed

• Dry Whey to open soft

• Class IV & NFDM futures to open mixed

• Butter to open steady to higher


Grain futures

Soybeans garnered the limelight in the grain complex as prices soared to near 50¢ higher before losing steam and falling – closing in negative territory. Yesterday’s move has the earmarks of a “blow-off” top for soybeans.  Dairy producers across the land have been waiting for some sign that protein costs would drop along with corn. That sign may have come yesterday with a final battle cry from market bulls. Corn prices fell in sympathy to soybeans. Export sales exceeded expectations, and we expect to see continued strong demand at current price levels. We still see corn as having bottomed for the time-being – and likely the next few months..

Today’s expectation:

• Grain futures to open mixed

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