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

June was the only big Class III mover in futures price yesterday, having gained 36 cents alongside a spot cheese market that continued an aggressive move higher. The market is showing signs of believing cheese price will move higher by adding premium in June, but also showing its doubts of long-term sustainability by trading mixed beyond the month of June. The fact that buy interest stopped with a single trade at $1.78, up 4 cents, leaving the next best bid down at $1.74 likely took some of the luster off the rally.

The jury is still out on the potential upside for the cheese market. While it appears there are some similarities between prices movements during the past week and the rally and panic that formed earlier this year, the one glaring difference is that discussions in the country are more calm and less worried. There is a legitimate concern from manufacturers surrounding both milk and cheese production over the coming months, but that discussion appears to be losing ground against a growing concern that this time around a $1.75 to $1.80 cheese price may lead to quicker demand destruction.

Meanwhile, Class III open interest continues to grow and has done so on both up and down days lately. Producer selling is picking up a little steam this week, though milk/feed profit margins remain smaller than most producers would like and therefore are keeping many on the sidelines.

The little lady has moved on. The Australian Bureau of Meteorology has declared that the strongest La Nina since 1973 is over. A La Nina weather event in the Pacific Basin has ended, with anomalies of key indicators in the Pacific Basin returning to neutral levels. La Nina was associated with the torrential flooding problems that plagued Australia — and their agricultural sector — particularly late last year.

An interesting historical note: During 2008, the CME block/barrel prices actually posted their price peaks during the last two weeks of May.   

Class IV prices mimicked Class III with a large 25 cents gain in the June contract but other months mixed on marginal price moves; volume was very light. Cash-settled cheese futures have once again seen a volume disappearance this week, and yesterday was no exception amidst a firm trading session.

We look for Class III to open mixed to lower.

With regard to corn, the bounce from Tuesday’s sell off held into the close. Weather and price violence remain rampant themes that are unlikely to fade anytime soon, though prices look poised to trade lower. Plantings are catching up but still remain behind. Two to three inches of rain are called for Iowa, Missouri, and part of Illinois over the next day or so. This system is called to push north to Canada, leaving behind warmer drier, crop-growing weather for much of the corn belt.

We look for corn to open 4 to 6 cents higher for old crop and 4 to 5 higher for new crop; beans to open 8 to 10 higher.

Daily CME spot market prices:

Block cheese: $1.78 (up 4 cents)

Barrel cheese: $1.755 (up 1.5 cents)

Butter: $2.1225 (unchanged)  

Grade A NFDM: $1.64 (up 1.5 cents)

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Source:  FCStone/Downes-O'Neill