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

Class III price was mixed early, but ultimately moving higher along with commodity wide price gains seemingly finding good support when grain futures opened up some 15 to 20 cents stronger yesterday morning. Volume was heavy throughout the day as prices maintained their strength, but were reluctant to add any further premium after the spot markets closed higher on bids. Settlements in 2011 were steady to 18 higher, led by June and July.

The milk production report held little for the bears as it came in under 2.0 percent gains for the first time this year, and that’s likely to be the biggest takeaway from yesterday’s report. A slight bump of buying activity seemed to hit the market following the report, but this report has likely been priced in already by futures. Overnight prices have been quiet, and we don’t expect the report to have a big impact on activity today. In fact, short of having a sharp and somewhat unexpected rise in CME spot prices, we may see that the three-day pre-report rally in Class III fades today.  

Cash cheese futures mixed on the day though mostly stronger with prices ranging from –0.002 to +0.019. A total of 19 trades occurred during the session. As with Class III, the spot market will likely have to prove to the market it wants to move sharply higher before futures will tack on any additional premium.

We are calling Class III to open mixed.

In the grains, a dropping dollar wasn’t even needed as it was higher to mixed throughout the day and commodities rallied in spite of that. With the underlying fundamental support we’ve discussed ad nauseam this week, a little outside market help moved corn to limit gains in July quickly as beans jumped over 40 cents and wheat nearly 50 higher.

While the market looked technically very ugly late last week, this price rebound has given market bulls a new lease on life. On par, we can look for limited downside today on new crop corn, while the July contract could be much more unpredictable in its movement with very strong basis but not especially supportive fundamentals currently. But last week’s trade should not be forgotten, as it was likely a precursor event and not a one-off.

We look for corn to open 1 to 3 cents higher for new crop and 4 to 7 higher for old crop; beans to open 4 to 6 higher.

Daily CME spot market prices:

Block cheese: $1.6675 (up 1.25 cents)

Barrel cheese: $1.6625 (up 1 cent)

Butter: $2.07 (down 0.5 cent)  

Grade A NFDM: $1.62 (down 1 cent)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.

Source:  FCStone/Downes-O'Neill