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

Class III futures posted a total of 1,582 trades as the market bears asserted themselves once again, driving prices at settlement down between 1 and 39 cents in the July through June 2014 contracts.  The remaining 2014 contracts settled mostly unchanged with the exception of the August and December, which added 6 and 7 cents respectively.

The nearly nationwide heat wave of the week prior has broken, eliminating the scorching heat that had hampered milk production, albeit short-lived, and carried the class III market out of the grip of the bears toward technical support levels- of which Sunday night held and bounced upward off. With temperatures falling nearly coast to coast, milk production is once again positioned to outperform last year.  Add to that the steep decline in grain prices and we could be in store for a protracted grind lower in milk check values after a potential seasonal price bump.

Australian milk production for the calendar year ending with the passing of the month of June was estimated to be down 3 percent year over year, while production for the month was down 6.8 percent from June of last year.  Continually disappointing production rates out of the Oceania region could be the saving grace for the U.S. dairy producers as we all wait with baited breath to see how New Zealand recovers from last year’s historic drought.

Dairy cow slaughter for the month of June totaled 220,300 head, down 27,400 head (11.07 percent) month over month.  For the week ending July 13th, the dairy cow slaughter under federal inspection increased by 9,400 head (19.9 percent) week over week to 56,600 head. The year-to-date slaughter now totals 1,679,600 head, 3.3 percent higher than during the same period last year.

We look for Class III to open higher.

Spot session results:

Block cheese: $1.7625 (down 2 cents)

Barrel cheese: $1.7600 (unchanged)

Grade A NFDM: $1.7800 (up 0.5 cent)

Butter: $1.4325 (down 1.75 cents)

The grains ended the week with mild variations in price at Friday’s settlement after a week of extensive selling pressure hammered the markets.  The September corn contract shed 4.00 cents to settle at $492.00, as last week’s drastic selloff brought the contract below $500.00 for the first time.  The December corn contract wasn’t far behind, dropping 2.75 cents on the day to settle at $476.00.  Week over week the Sept contract shed 52.00 cents while the December lost 22.00.  The August soybean contract closed out the week at $1349.75, down 5.50 cents on the day as the November soybean contract gained 4.50 cents to finish at $1228.50.  The August beans, week over week, fell an astounding $1.41 in value while the November contract lost 45.50 cents. The shift in weather conditions to near ideal conditions for crop yield coupled with aggressive declines in basis costs and producer selling all worked in perfect tandem to push the futures lower.  The drastic decrease in U.S. grain prices has hit a level competitive with international prices and could peak export interest.  While the recent shift in weather conditions has alleviated most concerns regarding this year’s crop, the driest areas within the western Corn Belt were mostly excluded from the rains and are still a concern as we head into the month of August; the most critical of months in regards to yield.

We look for the grain complex to open soft.

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