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

A quiet trade ensued for the Class III market Monday as an extremely active overnight session was followed up on by one of the lowest volume day sessions in quite some time. With the active Sunday night volume it looked like yesterday could end up with very strong volume, and though we reached nearly 500 trades by spot time, total volume crawled to just 892 by the close.

The lack of activity was likely largely due to no bids offers or trades taking place during the spot cheese session. Prices closed mixed but mostly higher from -6 to +10.  It appeared little influence from the softer grain markets spilled over as despite rains temperatures are not forecast to drop too much, leaving milk production still very much at risk.

News was very quiet on the day outside of those few factors and that led to a nearly silent trade from 11 am through the remainder of the day.

Our EU dairy market recap showed a very soft market making its way down toward the U.S. and G.D.T. results from elevated prices. Buying activity on the physical market is reportedly slow just as it is here in the US. Nothing much surprise here as the international markets seem to have a set trend for the short- to medium-term. Not much fresh news is on tap for the remainder of the week so all eyes will be peeled to the spot session in the coming days.

Warrnambool’s final milk price shows slight increases: http://theland.farmonline.com.au/news/nationalrural/dairy/general/warrnambool-flags-final-milk-price-raise/2238171.aspx   

Class IV futures saw a lot of price change but very little in terms of volume. Just two trades took place each in September at unchanged and it was the lone 2011 month without movement as July was down 9 and other months were 4 to 16 higher. 2012 futures saw big price increases despite a lack of activity in butter and NFDM and they were playing catch up to the current product futures prices and correcting the backwardated market. 

Cheese futures traded seven times with prices mostly unchanged as September was up 0.006 and December was down 0.004.

We look for Class III to open lower.

Butter was the lone spot market to see any activity with two bids coming in at an unchanged price of 2.04 and that was it for the day as buyers reentered the market despite the increase in stocks on Friday’s cold storage report. Futures were mostly offered at or near settlement but only 1 trade occurred on the day with November falling by 1.5 cents. Every other month from July 2011 through September 2012 was unchanged, except for November which was 1.5 cents lower.  The fourth quarter of 2012 saw prices increase 1 to 3 cents on bids. Very little activity and not much to take note of other than the 85 trades that were done ex-pit.

We look for butter futures to open steady/mixed. 

Grain prices traded sharply lower overnight Sunday and had recovered slightly by the time the electronic market closed Monday morning, but when the market opened Monday prices again dove double digits and hit new daily lows. Corn dipped as much as 19 cents, beans as much as 30 cents and wheat as much as 20 cents as well. Intraday moves were scarce as outside markets saw mixed currencies and mostly softer crude oil and equities. Wheat prices popped at the end of the day by nearly a dime from their lows which helped bring corn and beans off their lows as well.

Weather continues to be the main price driver for now and forecasts do look improved but part of the reason for the late day rally was fear of sharply lower crop condition ratings after the close. Corn condition ratings came in down 4 percent vs. estimates for a 2percent drop while beans were down 2 percent vs. estimates for a 1 percent decline. The market seems to be very accepting of a below trend yield the question is will it be at the USDA’s current 158.7 or somewhere lower as many of the private estimates are.

The Russian Grain Union raised its 2011 grain crop forecast to 89-92 million tons yesterday, compared to earlier official forecasts for 85-90 million tons, and up from 61 million tons in 2010.

Overnight prices opened quietly with prices mixed failing to find any additional support despite larger than expected declines in crop conditions. By this morning prices reversed course somewhat with many commodity markets trading higher, rebounding a bit from yesterday’s beatings.

We look for corn to open 3 to 4 higher, soybeans to open 7 to 9 higher, meal to open 2 to 3 higher and for wheat to open 4 to 6 higher.

Daily CME spot market prices:

Block cheese: $2.155 (unchanged)

Barrel cheese: $2.125 (unchanged)

Butter: $2.04 (unchanged)  

Grade A NFDM: $1.525 (unchanged)     

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